* Yen rockets to 76.25 vs dollar, pulls back to 79.05
* G7 to meet, traders on guard for Japan intervention
* Japan retail trader margin calls blamed for volatility
* Margin calls on Japan share losses spur yen buying
(Updates)
By Hideyuki Sano and Masayuki Kitano
TOKYO/SINGAPORE, March 17 (Reuters) - The yen soared to a
record high of 76.25 against the dollar on Thursday, reaching
levels that may force more market players to unwind positions
and test the resolve of Japanese authorities threatening
intervention to stem currency strength.
A break through the previous record of 79.75 triggered a
cascade of stop-loss and algorithmic selling of the dollar,
sending the yen surging in illiquid trade in the hours between
the U.S. and Asian trading days.
Dollar/yen clawed back to near 77.50 on buying by
Japanese importers and some retail margin traders, but the huge
earlier drop to the record was seen prompting other investors to
shed long positions in higher-yielding currencies, traders said.
The Japanese margin traders were cited as one of the main
factors behind the plunge in the dollar as stop-loss orders were
triggered in their leveraged bets in currencies like the
Australian dollar.
Just the day before, Japanese margin traders had built up
long positions in dollar/yen totalling $2.8 billion, according
to data from the Tokyo Financial Exchange. Total long positions
in major currencies including dollar/yen were a record $8.25
billion.
Traders also said that foreign investors were scrambling to
get hold of yen to settle margin calls on bets on Japanese
shares deeply in the red, forcing them to turn to spot currency
at times as well as forwards and cross-currency swaps
.
With a high risk of Japanese authorities intervening if the
yen rises further from current levels, some market players were
waiting for an intervention-sparked spike in dollar/yen before
unloading positions, traders said.
A stronger currency risks compounding Japan's economic
troubles at a time when it is struggling to contain a worsening
nuclear crisis, convincing many market players it was only a
matter of time before Japanese authorities intervened against
further yen strength.
Junya Tanase, foreign exchange strategist at JPMorgan Chase
in Tokyo, said there was a feeling in the market that the moves
had gone too far in a short period of time and intervention was
likely.
"There is a real possibility that authorities would
intervene to calm the markets, though I don't think it will be
heavy," Tanase said.
Japan's finance minister blamed speculation for the yen
spike and said he was closely watching markets, a warning that
the Bank of Japan may soon be given the signal to buy dollars.
Group of Seven nations will discuss possible steps to calm
markets roiled by Japan's crisis at 7 a.m. Tokyo time on Friday.
FX analysts at Citigroup said there was an "extremely high"
risk of intervention in the next 24 hours.
While the escalating nuclear crisis and subsequent rush for
safety was the initial spur for the yen surge, the move higher
was almost all about positioning.
All sorts of exotic option and structured products were
stopped out, on top of the unwind of the leveraged long trades
held by the margin traders.
During the surge, traders said the market was disorderly.
Liquidity evaporated and bids were pulled, leaving huge gaps in
the charts.
"It's mayhem out there," said one trader at an Australian
bank in Sydney. "The yen's been moving a big figure a second on
occasions. A lot of people are crying out for the central banks
to step in."
The dollar's collapse cracked the previous record of 79.75
struck in 1995 in the months following the Kobe earthquake.
The yen also flew on the crosses, jumping around 6 big
figures on the Aussie to as far as 74.50 yen , a
six-month high, before clawing back to 78.05 yen.
The Aussie has shed over 7 percent against the yen so far
this week as investors sell it as proxy for risk and global
growth.
An unwind of yen-funded carry trades has driven the Japanese
currency higher all week, with few signs yet of the Japanese
investor repatriation of funds in foreign assets that many are
expecting to help cover costs from the crisis.
The cost of hedging against a further yen rise jumped, with
implied volatility on one-month dollar/yen and
Aussie/yen options reaching near 20 percent.
Japanese officials played down the risks of such
repatriation on Thursday, with Economics Minister Kaoru Yosano
saying the yen was driven by speculative moves and not
repatriation.
"I would assume that certainly the carry trade is being
unwound," said Dan Fuss, vice chairman of Loomis Sayles, which
oversees $150 billion in assets.
The Aussie was at $0.9802 and fell as far as
$0.9705 on Thomson Reuters Matching, a three-month low and a
huge reversal from $1.0143 at the end of last week.
The euro/dollar pair was a relative sideshow at $1.3920
.
Japan's nuclear crisis reached a new danger level as a U.S.
official said one of the pools containing highly radioactive
spent fuel rods at the stricken plant had run dry.
(Additional reporting by Kazunori Takada in Shanghai and Ian
Chua in Sydney; Writing by Eric Burroughs)
