LONDON (AFP) - The yen retreated from an eight-month high point against the dollar on Tuesday after Tokyo fired a warning shot to traders over the Japanese currency's surge, dealers said.
In late morning London trading the dollar rose to 89.72 yen, up from 89.58 in New York on Monday, when it had struck an eight-month low at 88.25.
The European single currency fell to 130.91 yen from 130.93, and to 1.4627 dollars from 1.4686.
The dollar rebounded after Japan's Finance Minister Hirohisa Fujii said the yen's recent rise was "a bit too rapid" and Tokyo did not rule out stepping into the market to sell the currency "in an abnormal situation."
Although intervention by the Japanese authorities still appears unlikely, traders used Fujii's remarks as a cue to take some profits, said Yuji Saito, head of forex at Societe Generale in Tokyo.
Fujii has said on several occasions since taking his post earlier this month that in principle he opposes action to curb the strength of the yen, which hurts Japanese exporters' earnings.
On Monday, he had said the dollar's recent down trend was "not abnormal" and it would be a "mistake" to artificially weaken the yen to defend exporters. But he later said his remarks had been misinterpreted as support for a strong yen.
Japan has not intervened in the foreign exchange market since March 2004, allowing the yen to find its own level against the dollar.
Fujii "appears to be back-pedalling on some of his recent comments about not intervening in the forex market and allowing the yen to appreciate," Barclays Capital analysts wrote in a note to clients.
"The realities of governing may be starting to set in," they added. "In our view, a strong yen is not good for the Japanese economy, which has structural problems with deflation and an over-dependence on exports."
A record 2.4-percent fall in Japan's core consumer prices in August from a year earlier raised expectations that interest rates in Asia's biggest economy will remain low for some time, reducing the appeal of yen-denominated assets.
The dollar is also being weighed down by expectations that US interest rates will remain at rock-bottom levels for a while, said Saito.
But traders are likely to refrain from selling the dollar aggressively this week due to caution ahead of a key survey of Japanese business confidence due on Thursday, as well as Friday's pivotal US jobs data, he added.
In London on Tuesday, the euro was changing hands at 1.4595 dollars against 1.4612 dollars late on Monday, at 130.91 yen (130.93), 0.9188 pounds (0.9202) and 1.5109 Swiss francs (1.5093).
The dollar stood at 89.72 yen (89.58) and 1.0356 Swiss francs (1.0327).
The pound was at 1.5879 dollars (1.5878).
On the London Bullion Market, the price of gold firmed to 993.05 dollars an ounce from 991.75 dollars an ounce late on Monday.
