Yen hovers near record high in London

The yen hovered near a record high against a broadly weak dollar on Thursday, keeping alive the risk of official intervention to stem the Japanese currency's sharp rise. The dollar slumped to 76.25 yen in early overnight trade as the nuclear crisis in Japan forced investors to cut back on carry trades and position for Japanese investors selling overseas assets to bring home funds.
Speculators forced the dollar below the previous record of 79.75, triggering a cascade of stop-losses related to exotic option structures and algorithmic selling of the dollar, sending the yen surging in illiquid trade between the US closing hours and the Asian open. It stood at 78.59 in volatile European morning trade, after buying by Japanese importers and some retail margin traders helped dollar/yen claw back briefly on to a 79 handle.
Group of Seven finance leaders and central bankers will discuss possible steps to calm markets roiled by Japan's crisis at 2200 GMT on Thursday. "The G7 discussion is likely to be about pre-approval of intervention by the Japanese and some degree of what would need to happen for joint intervention to be necessary," said Ray Farris, currency strategist at Credit Suisse.
Japan's finance minister Yoshihiko Noda blamed speculation for the yen spike and said he was closely watching markets, a warning that the Bank of Japan may soon be given the signal to buy dollars. Japan launched a record one-day, $26 billion bout of dollar-buying intervention in September when a stronger currency was undermining the Nikkei average and threatening to worsen deflation.
The cost of hedging against a further yen rise jumped, with implied volatility on one-month dollar/yen trading close to 20 percent, though still below levels seen at the peak of the 2008 global financial crisis of around 30 percent. The yen also flew on the crosses, jumping around 6 big figures on the Aussie to as far as 74.50 yen, a six-month high, before falling back to 77.00 yen.
The euro rose to a 2011 high of $1.4052, levels last seen in November, after solid demand at a Spanish bond auction and on the view that eurozone interest rates were likely to rise soon. The euro's rally helped push the dollar index down to a four month low of 75.848.