The yen headed for its largest weekly rise since October 2008 after Japan's finance minister, Taro Aso, said he would not intervene to weaken the currency.
Yuji Saito, the director of foreign exchange at Credit Agricole in Tokyo, said: "[Thursday's] sell-off in dollar-yen has picked back up after Aso dismissed the idea of intervention."
The yen rose to 96.78 per US dollar in early London trading, making it set for a 3.7 per cent advance this week.
It rose 2.2 per cent to 96.97 on Thursday, the biggest jump since May 2010. The yen has jumped 3.3 per cent in the past month, the most among 10 developed-market currencies tracked by Bloomberg.
Aso said yesterday: "We are carefully watching, but we don't have any immediate intention of taking any action, such as intervention."
The yen touched 95.55 per dollar yesterday, the strongest since April 4. Japan has not sold its currency to weaken it since 2011, when it reached a postwar record of 75.35. A stronger currency hurts the overseas competitiveness of domestic companies.
The Bank of Japan's quantitative easing plan, announced in April, involves monthly purchases of more than 7 trillion yen (HK$550 billion) in Japanese government bonds.
The currency weakened more than 20 per cent against the US dollar from the middle of November until the end of last month amid expectations of expanded monetary and fiscal stimulus under Prime Minister Shinzo Abe.
Futures traders had increased bets that the yen would weaken against the US dollar to the most since July 2007. The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan's currency compared with those on a gain, known as net shorts, was 99,769 contracts on May 28, versus 95,186 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
Kikuko Takeda at Bank of Tokyo-Mitsubishi UFJ in London, said: "We're seeing large unwinding of carry trades and violent moves in dollar-yen." The carry trade involves borrowing in low interest rate currencies to buy higher-yielding assets.Topics: Japanese Economy Yen