Markets will be extremely unstable in the short term. There is an increasing chance of central bank action in an attempt to stabilise markets and curb further yen strength.

The yen strengthened further in US trading with a peak near 96.0 as risk appetite remained depressed before a retreat to 98.0 as equity markets attempted to rally as market conditions remained extremely volatile.

Japanese equity prices came under renewed selling pressure on Friday with rapid declines and this contributed to renewed upward pressure on the yen, especially once the dollar weakened through the 2007 lows against the Japanese currency. The US currency fell to a 13-year low near 95 against the yen.

The comments from Japanese officials will be watched very closely in the short term with further speculation over action to intervene and stabilise the currency markets, especially with earnings warnings from Japanese companies. There will also be speculation over a cut in domestic interest rates next week.

Panic increased in Europe with the yen strengthening rapidly to beyond the 95 level against the dollar with a dollar trough below 92 level  while the yen accelerated the gains to 115 against the Euro.