SYDNEY (Reuters) - The yen held firm on Wednesday, having swung higher in dramatic style as investors cut bearish positions after an official from the Group of Seven said there were concerns about excessive movements in Japan's currency.
In a volatile session, the yen at first weakened after Japanese Finance Minister Taro Aso said a G7 statement recognised that Japan's reflationary policies are not aimed at affecting foreign exchange markets.
But a G7 official later said the statement was meant to signal concerns about excessive moves in the yen, prompting a vicious reversal in the currency.
A Canadian official later chimed in saying the statement was aimed at calming rhetoric on currencies, perhaps a hint that some G7 members feel Japan has been too vocal about the need for a softer yen.
Amid the confusion, the dollar skidded to around 93.27 yen from a near 33-month high of 94.41, while the euro shed more than one yen to as far as 125.00. They were last at 93.45 and 125.80 respectively.
"In an effort to soothe excessive moves in the yen, the G7 has in fact stoked excessive moves in the yen. How ironic," said Christopher Vecchio, currency analyst at DailyFX.
To be sure, there was bound to be volatility in the Japanese currency in the run-up to the Feb 15-16 G20 meeting given its breathtaking decline had drawn criticism from some of Japan's international peers.
Relentless pressure on the Bank of Japan by the country's new prime minister to defeat deflation gave investors the green light to sell the yen, which has slumped nearly 20 percent on the greenback since November.
Investors were also likely to tread cautiously ahead of the outcome of a BOJ meeting due on Thursday, although many expect the bank to hold off on any fresh easing measures until a new governor is appointed.
With a resurgent yen hogging centre stage, the other major currencies were mostly relegated to the sidelines. The euro drifted higher against the greenback, edging to $1.3456 as it continued to pull further away from a two-week low around $1.3325 plumbed Monday.
Commodity currencies also recovered a bit of ground against the U.S. dollar. The Aussie dollar popped back above $1.0300, although it appeared to be trending lower since the Reserve Bank of Australia left the door open to more rate cuts last week.
There is a dearth of market-moving data out of Asia on Wednesday. In the euro zone, industrial production figures are due, while U.S. retail sales will probably be the key focus for many investors.
Editing by Wayne Cole