The yen fell back to hit 110 against the dollar - 2 per cent off its three-year high of 107.69 the previous day. Bankers estimated that the Bank of Japan spent pounds 2bn buying up dollars, less than its heavy interventions over the summer.
Stephen Lewis, chief economist at Monument Derivatives in London, said Japan had now spent pounds 34bn propping up the dollar. "This intervention was probably spurred by the speed of [the yen's] move. It can develop its own dynamic," he said.
The government continued to try and talk the yen down. Prime Minister Keizo Obuchi said a rapid rise in the currency was undesirable, adding: "It is important for currencies to move in a stable manner." The strong yen has made life tough for Japan's exporting manufacturers.
But analysts doubted the yen would reverse direction, as its strength was based on the bullish outlook for the economy. Thursday's surge in the yen was driven by figures showing the economy grew 0.2 per cent in the three months to June, beating forecasts of a 0.3 per cent fall.
"There's not much point in depressing the yen's value in the light of more signs of economic recovery and capital flows favouring the yen," said an analyst at the Bank of Tokyo-Mitsubishi. Others said the BoJ's move showed it was prepared to curb violent movements.
Meanwhile, the Indonesian rupiah surged through 8,000 bid to the dollar from 8,620 in London trade on Thursday, despite warnings from President Bill Clinton that aid could be cut if violence continues in East Timor. But strategists said the rally might be short-lived.
"The rupiah has strengthened very sharply and a lot of people have been caught out," said a trader in Jakarta.Reuse content