Japan pumped more funds into its shaky financial system on March 17 after stocks fell and the yen surged to a record high, which Tokyo blamed on currency speculators following a huge earthquake. The central bank injected another six trillion yen ($76 billion), increasing to 34 trillion yen the total amount of funds added to money markets since Monday to soothe jitters after last week's devastating quake and tsunami.
Finance chiefs from the G7 rich nations were set to hold telephone talks on the crisis on March 18 Tokyo time, as market talk grew that Japan might be preparing measures to rein in the soaring yen.
"There is intensifying market speculation the Bank of Japan will soon intervene to cap support of the yen," said NAB Capital analyst David de Garis.
Dealers said some market players appeared to be buying the yen on expectations that Japanese companies will repatriate funds to pay for reconstruction. Such speculation is "totally groundless," said Economy Minister Kaoru Yosano, adding that yen's surge was "extremely speculative."
Investors welcomed news that army helicopters dumped water on the crisis-hit Fukushima nuclear power plant in a bid to douse radioactive fuel rods as part of efforts to prevent a release of radiation.
Stocks recovered some of their early losses to end down 1.44%, having sunk more than 4% in early deals.
Tokyo's Nikkei share index suffered the biggest two-day sell-off for 24 years on March 14 and March 15, plunging 16%, amid the world's worst nuclear crisis since Chernobyl in Ukraine in 1986.
The yen struck a record high of 76.52 per dollar in early Asian trade, but later pulled backed, easing worries about the impact of a strong currency on exports. The yen was quoted at 78.34 against the greenback in European trade.
Japanese officials declined to comment on the possibility of intervention, but their silence did nothing to dampen market speculation.
"Given the extraordinary circumstances in Japan, there should be no real opposition to foreign exchange intervention from key global partners, including the U.S. and the eurozone," Nomura Securities analysts wrote in a report.
Damage from the earthquake and tsunami could potentially amount to tens of trillions of yen (hundreds of billions of dollars) and trigger a sharp fall in output at factories across the world's third largest economy, analysts say.
Risk assessment firm EQECAT said on March 15 that the twin disaster had resulted in estimated insured losses of between $12 billion and $25 billion.
But history suggests that industrial production could quickly rebound as it did after a massive quake in 1995, which leveled much of the Japanese port city of Kobe, while reconstruction spending should also help to foster a recovery.