Japan's Nikkei share average climbed 5.7 percent , regaining some ground after plunging 10.6 percent a day earlier following reports a quake-crippled nuclear power plant had sent radiation wafting toward Tokyo.
Wednesday's bounce in Tokyo shares gave some respite to the Australian dollar, which had slid 3 percent against the yen on Tuesday. Higher-yielding currencies like the Aussie are seen as proxies for global growth and sold in times of stress.
The US dollar also rose against the yen, edging up 0.1 percent to around 80.84 yen . The dollar had fallen to around 80.60 yen on Tuesday, less than a yen away from the 1995 record low of 79.75 yen ."The way Tokyo shares fell yesterday looked like panic-selling and the market may start to settle down from here on," said a currency trader for a Japanese brokerage house in Tokyo.
"But it is hard to say how the problems related to the nuclear power plant will unfold, and depending on that, the market may change very quickly," he added.
In a sign that the crisis at the Fukushima Daiichi nuclear power plant, 240 km (150 miles) north of Tokyo was worsening, workers were briefly ordered to withdraw from the quake-stricken plant after radiation levels surged.
The Australian dollar rose 0.6 percent against the yen to 80.31 yen FEARS OF INTERVENTION
Since a massive earthquake and tsunami hit Japan on Friday, the yen has risen partly on market speculation that Japanese insurers and companies may repatriate funds to help pay claims and reconstruction costs.
But fears of intervention by Japanese authorities to weaken the yen has limited its upside so far.
Some traders say fund repatriation by Japanese banks has contributed to the yen's strengthening this week, but domestic life insurers have not made similar moves.
"Both investors and individuals need to have cash on hand. There have been pretty large moves to sell assets to secure cash... When there is a crisis these types of moves always occur," said Tsutomu Soma, senior manager at Okasan Securities' foreign securities department.Japanese banks are piling up cash so they can respond to any increase in cash needs and withdrawals among depositors, he added.
However, Soma and other traders said any repatriation by Japanese insurers, if it occurs, is only likely to emerge several months from now, after the scale of damages becomes clearer.
Indeed, traders say repatriation by Japanese life insurers will likely have only a limited impact in lifting the yen, and that the yen's rise this week has been driven by short-term speculators such as trend-following commodity trading advisors (CTAs).
"Their repatriation will most likely be spread over a few months while there's counter-flows such as foreign investor selling of Japanese shares. The yen's strength has to do with the typical risk aversion trade," says Hiroshi Yokotani, fixed income director at Alliance Bernstein in Tokyo.
The safe haven Swiss franc remained near a record high against the dollar. The greenback held steady near 0.9163 franc , hovering near a record low of about 0.9140 franc hit on Tuesday.
The euro dipped 0.1 percent to $1.3986 , after Moody's cut the sovereign rating of Portugal by two notches and kept a negative outlook.