FOREX-Yen jumps after G7 official cites worries about big drop
* G7 official says statement intended to signal concern on yen moves
* Statement on currencies initially cools currency war talk
* G7 reaffirms commitment to market-determined exchange rates
* ECB Draghi says no such thing as a currency war
By Julie Haviv
NEW YORK, Feb 12 (Reuters) - The yen leaped against the dollar and euro on Tuesday, rebounding from recent multi-year lows, after a Group of Seven countries official said a recent statement on by the group was meant to express "concern about excess moves" in Japan's currency.
The Group of Seven rich nations also meant its statement to signal concern over statements from Tokyo about the levels of the Japanese currency, a G7 official said.
The yen has been volatile depending on how markets have interpreted the position of the G7 nations. The yen statement from the G7 official countered the way markets had been interpreting the position.
"The G7 statement was misinterpreted. The G7 statement signaled concern about excess moves in the yen," the official said on Tuesday. "The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend."
The official was referring to a meeting of the Group of 20 finance ministers in Moscow this Friday and Saturday.
"It will need a senior named U.S. official referring to the G7 statement on excessive volatility to give a clear signal that G7 ex-Japan has run out of patience on yen weakness," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
"We don't know who the official is who spoke about the G7 statement being misinterpreted, or how senior they are. Quite frankly this is a mess, but it will only restrain yen selling briefly, unless echoed by important named officials."
The G7 said it remained committed to market-determined exchange rates and that fiscal and monetary policies must not be directed at devaluing currencies.
The yen tumbled overnight, shortly after the G7 currency statement, as markets initially thought Japan had received a green light to continue efforts to reflate its economy. But the market reversed course in North American trading hours, after the comment from the official.
"The initial statement was interpreted as benign for the yen and in this clarification they are very clearly singling out Japan's policy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"This sets us up for a very interesting G20 meeting later in the week," he said. "But, the scope for a major shift in policy as a result of statements is very limited, especially with the U.S., U.K. and Japan actively participating in currency devaluation."
The dollar last traded at 93.14 yen, down 1.2 percent on the day, according to Reuters data. The is below a high of 94.42 yen on Monday, which was its strongest since May 2010.
The dollar has risen 7.4 percent against the yen so far this year.
"Statements and actions are two different things, so how actionable these statements are is a question mark," Esiner said.
The euro last traded at 125.28 yen, down 0.9 percent on the day. On Feb. 6 it hit a near three-year high of 127.71 yen.
The common currency has risen about 9.5 percent against the yen, leading to strong protests from some European leaders that a strong euro would hurt a fragile economic recovery.
Strategists said the yen's weakness, driven by the new Japanese government's demands for aggressive easing of monetary policy to beat deflation, would persist and investors would buy the dollar and the euro on dips, making any yen rebound short-lived.
The euro last traded at $1.3448, up 0.3 percent on the day. Gains accelerated after comments from European Central Bank President Mario Draghi.
Draghi said there is no such thing as a currency war and exchange rates are as important for growth as for price stability. He also said Spain was on the right track towards economic recovery.
Concerns about a bailout for Cyprus, about a Spanish political scandal and about Italy in the run-up to Feb. 24-25 elections are likely to check gains in the euro.
In European bond markets, Spain sold 5.6 billion euros of 6- and 12-month debt, beating the top end of the target amount, but paid a higher yield on the longer-term paper as a political corruption scandal weighed on shaky confidence.
Italy's debt costs also rose as it sold 8.5 billion euros of one-year paper.
Financial markets showed a muted reaction to the news that North Korea has conducted a nuclear test.
In the U.S., focus will be on the evening's State of the Union address by President Barack Obama for any signs of a deal to avert automatic spending cuts due to take effect on March 1.
On Wednesday, a primary focus will likely be on U.S. retail sales data.