The greenback jumped as high as 122.50 yen in Tokyo on fresh bids and bargain hunting after profit-taking briefly dragged it down to around 120.50 yen earlier in the morning.

"The market took the silence of the G7 nations as a `go sign' to buy the dollar against the yen. The market thinks the G7 approved or rather should we say connived at the weakening of the yen," Nippon Credit Bank's deputy manager Hitoshi Imamura said.

Although the dollar's rise was slowed by export firms' sales and profit-taking, many operators were eager to test how far it could climb before monetary authorities try to stem its rise against the yen, they said.

A report in the Japanese daily Asahi Shimbun's online edition on Monday, which quoted a Bank of Japan official saying the central bank is notnecessarily endorsing a further depreciation of the yen, also made operators cautious about bidding the dollar aggressively.

"The question the market is asking now is when will monetary authorities check the rise of the dollar. Will it be at 125 or 130 yen?" a dealer at a Japanese city bank said.

"Until the market sees a clear message, operators will continue buying the dollar against the yen," the dealer said.

Takashi Toyahara, deputy manager at Nomura Trust and Banking, said he believed monetary authorities were unlikely to make comments seeking to curb the yen's weakness unless its fall was becoming too excessive.

"The dollar's clear jump above 125 yen should pave way for it to quickly surge towards 130 yen. In that kind of situation, I expect monetary authorities may comment to check that kind of rise," Toyahara said.

"But if the dollar was to rise at a gradual pace then there is a possibility that it would go towards 130 yen."

In a communique, financial leaders of the G7 said foreign exchangerates should reflect economic fundamentals and agreed to work together to avoid excessive swings and significant misalignments in currency markets.

But the G7 communique did not refer to the recent weakness of the Japanese currency.

Japan's vice finance minister for international affairs, Eisuke Sakakibara said on Monday that the G7 meeting did not discuss whether the G7 should allow the yen to weaken further.

Asked whether G7 nations discussed specific levels for foreign exchange rates, Sakakibara told reporters "There was no such discussion".

He declined comment on the yen's fall against the dollar after the G7 meeting.

Last week, the dollar rose nearly seven per cent from a low on Monday as dollar sentiment turned bullish after comments on Tuesday by Sakakibara.

Sakakibara said it was "natural" for the yen to fall as a result of a credit easing by the Bank of Japan on February 12, and that he welcomed the yen's decline.

Dealers said the trend of a weaker yen was seen as needed by Japan tohelp its ailing economy to recover, and it was expected to continue until the end of March, when Japanese firms close their books for the financial year.

BOJ Governor Masaru Hayami said last week that a recent weakening of the yen was a positive phenomenon given current economic conditions in Japan.

Hayami, speaking when the dollar was around 117 yen after the BOJ's credit easing, said "Given current economic conditions, this is a good phenomenon that will revitalise the domestic economy."

Nippon Credit's Imamura said, "At least we know that Japan's policy on the forex market will be like this until the end of the fiscal book closings. In the short term the market will aim for 125 yen as the next target."