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TOKYO (Reuters) - Japan sold the yen for the second time in less than three months after it hit another record high against the dollar Monday, saying it intervened to counter excessive speculation that was hurting the world's No. 3 economy.
The intervention vaulted the dollar more than 4 percent higher, which would mark its biggest one-day gain in three years, and Finance Minister Jun Azumi said Tokyo would continue to step into the market until it was satisfied with the results.
Indeed, his deputy later said the intervention was not over yet, when asked to assess its effects as the dollar began slipping from the day's high.
"I don't think intervention has ceased yet," Fumihiko Igarashi told reporters.
Many market players voiced doubts the impact would last given that previous intervention since September 2010 had failed to prevent the yen from resuming its rally and setting a series of all-time highs against the dollar.
Tokyo's latest foray followed repeated warnings that its patience with the yen's strength was wearing thin, and came just days before the Group of 20 leaders' summit in Cannes, France.
The summit will focus on Europe's efforts to contain its sovereign debt crisis and avoid a repeat of the financial shock that roiled markets after the Lehman Brothers collapse in 2008.
But Tokyo is keen to win G20 understanding that a strong yen is one challenge too many for an economy grappling with a nuclear crisis, a $250 billion rebuilding effort from a March earthquake and tsunami and ballooning public debt.
Japan also says investors buy the yen as a safe haven from the euro zone debt crisis and stuttering U.S. growth. It argues such demand has nothing to do with the fragile health of the Japanese economy.
"We started currency intervention this morning in order to take every measure against speculative and disorderly moves and to prevent risks to the Japanese economy from materializing," Prime Minister Yoshihiko Noda told parliament.
The intervention came after the dollar touched a record low of 75.31 yen and pushed the world's main reserve currency up past 79 yen. The dollar, however, slipped below 78 in European trade.
Japan's economy has been recovering from its post-quake recession with companies swiftly restoring production and supply chains and Tokyo has counted on reconstruction spending and robust emerging markets demand to sustain the momentum.
But the yen's climb has spurred policymakers to act.
Noda, who took over as Japan's sixth premier in five years last month, served as finance minister in the previous cabinet and led three past interventions between September 2010 and August, including joint action with G7 partners in March 2011. The September 2010 intervention was Japan's first in six years.
Azumi said that while Japan acted solo Monday, he remained in close contact with his international counterparts.
Several G20 nations, including Japan's exports rival South Korea, have intervened frequently in markets. But Japan is under more scrutiny as an issuer of one of three global currencies and does not want to be labeled as a currency manipulator.
Azumi has indicated after his past meetings with Group of Seven and G20 partners that they appreciated Japan's special circumstances.
Still, many voiced doubts about how long the impact of the intervention would last, including Honda Motor Chief Financial Officer Fumihiko Ike.
"Frankly, my reaction was: 'finally, they intervened.' But I'm also aware that a solo intervention has a limited impact," he said. "Will we be able to keep these levels" I'm not at all hopeful."[ID:nT9E7LD01M]
Stock market investors showed a similar reaction, Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, said.
The intervention initially boosted shares in exporters, helping push the Nikkei average to a three-month intraday high. However, the market closed down 0.7 percent. [ID:nL4E7LV1C3]
"The Nikkei was still unable to hold any gains, showing that investors are not confident that the yen will remain down," Ogawa said.
Takuji Okubo, chief economist at Societe Generale in Tokyo, was equally skeptical. "I do think this is one of many interventions to come," Okubo told Reuters Insider.
Some, however, said Monday's action that followed Bank Of Japan's monetary easing last week, could keep the yen away from its peaks for quite some time.
"It was very good timing. The BOJ has prepared the ground by easing last week. Speculators' yen-buying position has piled up, and intervention is most effective in such cases," said Yunosuke Ikeda, senior FX strategist at Nomura Securities.
BOJ Governor Masaaki Shirakawa was also hopeful the intervention -- conducted by the central bank on behalf of the finance ministry -- would have an impact.
"The BOJ strongly hopes that such moves will lead to currency market stability," he said in a speech.
Azumi would not comment on the size of the intervention, but one trader said the authorities were intervening "quite persistently."
The amount of intervention could match the 4.5 trillion yen ($59 billion) Tokyo sold on August 4 in its biggest single-day intervention so far, said Mitul Kotecha, head of global currency strategy at Credit Agricole.
Even though the yen's exchange rate measured against a trade-weighted currency basket and adjusted for inflation is not far from its 30-year average, its dollar rate is much stronger than that used by exporters in their earnings projections.
That has led to a flurry of warnings from car makers and electronic firms that they might be forced to move more production abroad to cope.
Chipmaker Elpida warned it might have to move production overseas and Honda's chief executive said earlier this month that the company would half exports from Japan over the next decade because of the strong yen.
Last Thursday, acting in part out of concern that such "hollowing out" of the industry could stunt Japan's recovery, the BOJ eased its monetary policy by boosting government bond purchases.
Additional reporting by Kaori Kaneko, Hideyuki Sano and Chang-Ran Kim in Tokyo, Masayuki Kitano in Singapore; Writing by Tomasz Janowski; Editing by Neil Fullick and Alex Richardson