TOKYO: The yen fell against the dollar and euro in Asian trade Tuesday after a senior IMF official indicated that the fund tolerated Japan's interventions in forex markets to quell volatility.
The comments by David Lipton, first deputy managing director of the International Monetary Fund, came as it also said that the Bank of Japan's asset purchase programme could be "expanded substantially".
In afternoon trade the dollar was changing hands at 79.53 yen in Tokyo, compared with 79.43 yen in New York late Monday and 79.33 earlier Tuesday.
The euro rose to 99.32 yen from 99.13 yen in New York and 99.03 yen earlier in the day, while gaining to $1.2483, well below Monday's rally past the $1.26 level but slightly up from $1.2482 in New York.
Tuesday's gains recovered some of the losses suffered in New York on Monday as earlier euphoria over Spain's multi-billion-dollar bank bailout faded.
Lipton told reporters in Tokyo: "We see in the world volatile capital flows where risk aversion and risk taking can create volatility.
"Certainly in that setting, intervention can be used to avoid disorderly markets."
Japan has stepped into currency markets several times since September 2010, selling trillions of yen to tame the value of the unit which hit post-war highs around the 75 to the dollar last year.
Finance Minister Jun Azumi has vowed further "decisive action" amid worries that the still strong yen was hurting exporters and damaging Japan's post-quake economic recovery.
Also Tuesday the IMF said Japan could go further with easing measures, including expanding its 70 trillion yen asset-purchase programme.
"Notwithstanding the current difficult environment for designing and implementing monetary policy, IMF staff believe that additional effective easing can be delivered," it said in a statement following annual policy talks with Japanese officials.
The asset-purchase programme "could be expanded substantially beyond current plans," it added.
That raised expectations for additional easing measures by the central bank, said a senior dealer at a major Japanese trust bank.
"The market leaned towards a risk-on mood," reversing the earlier risk aversion, said Yuji Saito, forex director at Credit Agricole.
The euro had eased earlier Tuesday as optimism fizzled over a eurozone deal to save Spain's troubled banks, with questions about the plan and wider Europe concerns weighing.
The unit, which tumbled to multi-year lows against the dollar and yen in recent weeks, staged a strong rally in Asia on Monday following the Spain news.
However dealers said there were few concrete details about the plan, which threatened to add to Madrid's already huge public debt, while wider eurozone tensions loomed ahead of fresh Greek elections on June 17.
There are growing fears about a Greek exit from the eurozone amid a wave of anti-austerity sentiment in the debt-ridden nation, a result that could spell disaster for Europe and the world economy.
The vote will be be a closely-fought duel between the pro-bailout New Democracy conservatives and the anti-austerity radical Syriza leftists, who have pledged to overturn reforms imposed under an EU-IMF loan agreement.
The dollar mostly rose against other Asian currencies.
It firmed to 1,168.30 South Korean won from 1,167.15 on Monday, to Tw$29.94 from Tw$29.90, to Sg$1.2829 from Sg$1.2768, to 31.66 Thai baht from 31.41 baht and to 9,450.00 Indonesian rupiah from 9,440.00 rupiah.
The greenback was unchanged at 42.97 Philippine pesos.
The Chinese yuan was trading at 12.44 yen, compared with 12.48 yen.
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