The dollar gained against the yen Monday, rising from a record low plumbed late last week, as investors covered dollar short positions wary that Tokyo could step into the market and with a U.S. bank detected buying.
Underscoring nervousness in the market, the dollar briefly spiked to a session high of 77.23 yen, but later pared some of those gains, with traders citing talk that the jump was triggered by bids from a U.S. bank.
The market is waiting and hoping for intervention. The dollar has been bought back since very early in the morning on short-covering after sharp losses, said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Japan's Finance Minister Yoshihiko Noda said Monday that the country would take decisive action against any speculative moves, while the Nikkei business daily reported on Saturday that the government was considering intervention.
The dollar last traded at 76.78 yen , off a record low around 75.94 hit on Friday. Traders talked of hefty sell-stops below 75.00, a level Japanese authorities are likely to keep the yen well away from.
I suspect there is a line drawn in the sand at 76.00. That's a factor which has clearly pushed dollar/yen off the lows, said Greg Gibbs, strategist at RBS in Sydney.
Japanese exporters were earlier spotted selling the dollar during the Tokyo fix and briefly pulled it towards late New York levels. Traders expect similar flows to further pressure the greenback later in the week in end-of-month transactions.
Fears the United States will slide back into recession and persistent worries about the euro zone sovereign debt crisis have hit risk appetite and bolstered demand for safe-haven assets in recent weeks.
As a result, both the yen and Swiss franc have risen strongly, spurring the Swiss and Japanese authorities to temper their strength, which is hurting their respective economies.
We have talked about 'currency wars', but now we're seeing the advent of 'monetary-easing wars', said a trader for a Japanese bank in Tokyo who spoke on condition of anonymity.
The Bank of Japan will consider easing monetary policy further, possibly at an emergency meeting before next month's rate review, if further rises in the yen push down Tokyo stock prices enough to hit business sentiment, sources said.
Swiss newspaper SonntagsZeitung reported on Sunday that pressure is rising on the Swiss National Bank to take further action to soften the Swiss franc, based on a poll of Swiss people it commissioned.
The dollar was last at 0.7860 francs , off Friday's session high around 0.7959.
As traders refrained from buying safe-haven currencies on intervention fears, gold surged 1.4 percent to an all-time high, setting its 10th record so far this month.
The euro was broadly lower, shedding 0.6 percent to 1.1295 francs compared with Friday's high of 1.1319. after Germany strongly rejected mounting calls for the euro zone to issue joint debt to help tackle the crisis. But it signaled it was open for the bloc to move towards a form of fiscal union.
Against the dollar, the single currency was down 0.2 percent at $1.4372 , having found the going tough above $1.4400. Traders said there are bids seen in the $1.4340-45 area, a level that is likely to provide first support.
We still think it will take a lot to test the upper edge of what is now an effective $1.41-1.45 range, with offers likely to be thick ahead of $1.45, BNP Paribas analysts wrote in a note.
They said they expected euro/dollar to move back to the low-end of the range ahead of Federal Reserve Chief Ben Bernanke's speech at Jackson Hole, Wyo., on Friday, or on any euro zone data this week that would increase global recession worries.
Commodity currencies staged a lukewarm rebound after most Asian bourses eked out modest gains with the Australian dollar up 0.3 percent at $1.0428, still below last week's peak of $1.0601.
(Reporting by Chikafumi Hodo and Antoni Slodkowski in Tokyo, Masayuki Kitano in Singapore, Ian Chua and Reuters FX analyst Krishna Kumar in Sydney; Editing by Joseph Radford)