Intervention is when central banks buy or sell a currency on the open market to affect its value.

News of the intervention sent the value of the yen soaring to 137 yen to the dollar from 142 late on Tuesday. It also fuelled a strong rally on Wall Street as equity investors, who had feared the Asian economic crisis would worsen and the weak yen would eat into the bottom lines of large multinational corporations, breathed a sigh of relief.

By late afternoon, the Dow Jones industrial average surged 163 points to 8,828.

The dollar's skid quickly stung the bond market, pushing the yield on thebenchmark 30-year bond up to 5.74 per cent as its price slid 1-13/32 of a point. Many investors feared that Japan might sell US bonds to replenish its dollar reserves after Wednesday's intervention.

The Japanese currency had fallen to its lowest level in eight years recently on fears that the ailing Japanese economy would spark another round of Asian financial shocks.

Treasury secretary Robert Rubin said Washington stood ready to continue supporting the yen if needed. However, he said Wednesday's action did not mark a change in US dollar policy.

``The answer to that is no,'' Rubin said in response to a question at a White House briefing. ``I think the strong dollar policy has served us exceedingly well over the past several years and still does.''

``The actions that were taken and announced both in Japan and the United States today were very much animated by concern for Asia, but has nothing to do with our more general policy with respect to the dollar,'' he said.

Traders said the interventionappeared limited to US and Japanese authorities, without a hand from other big industrialised countries. Britain said the action was a US-Japanese initiative and wished it every success.``This is a clear shift in US policy and it probably indicates that the US has received some concessions from Japan,'' said a senior economist at Barclays Capital in New York.

President Bill Clinton said the action was taken to show Washington supported Japan as it takes steps to revive its economy. Clinton said he had spoken with Japanese prime minister Ryutaro Hashimoto shortly before midnight on Tuesday to express US support for Tokyo.

``I was very encouraged by the prime minister's statement that he intends to pursue aggressive reform of their banking institutions and intends to do the things that were necessary to get the economy going again,'' Clinton said at the White House.

Japan's economy, the second largest in the world, has tumbled into recession this year, shrinking at an annual rate of 5.3 per cent in thefirst quarter of 1998.

Worried that the Japanese crisis could spread elsewhere in Asia and ultimately affect the US economy, Washington has repeatedly called on Tokyo to do more to revive its economy.

But it has been frustrated with Japan's reluctance to commit to specific plans. An additional factor in the US decision to go to Japan's rescue was fear that the Japanese currency slide would force its huge neighbour China to devalue its currency. China had warned that it could not withstand the economic pressure from the Japanese situation much longer.

``There's one other reason we're doing this -- a very important reason -- and that's the Chinese,''said a US administration official, who asked not to be identified.

The official said Washington wanted to avoid at all costs a devaluation of the Chinese currency, the yuan, because that could have set off a chain reaction throughout Asia.

The sagging yen and the decline of Japan's economy have put additional economic pressure on already struggling nationsacross the Asian continent.

Exporters in countries such as South Korea, Indonesia or Thailand -- at the receiving end of multibillion dollar bail-out deals -- need the Japanese market to sell their products, but are unable to do so since the weak yen makes their products more expensive for the Japanese to buy.

In a joint statement, Clinton and Hashimoto said the two economic superpowers had to act together to end a nose-dive in the yen.

``The president and I are delighted to see that the United States and Japan have cooperated in the exchange markets to support a strong, stable yen,'' Hashimoto said.

The US treasury confirmed initial intervention at 142 yen. The Fed also reportedly made purchases at 141 yen, 140 yen and 138.50 yen.

The statement by Clinton and Hashimoto came a few hours after Japan's parliament passed a special 4.65 trillion yen ($32.7 billion) supplementary budget that is part of a record 16.65 trillion yen economic stimulus package announced in April.

Thestatement also came a day ahead of a hastily arranged visit to Japan by US deputy treasury secretary Lawrence Summers that will include a meeting of finance officials from the Group of Seven industrialised nations.

Economists' reactions were mixed, with many stressing Japan still needs to get its house in order.

``I think the Japanese are in a very tough dilemma,'' said president Clyde Prestowitz of the Economic Strategy Institute.

``They don't seem to be able politically to take the steps that are necessary to get their economy stabilised. In fact, it's not even clear that they entirely recognise the danger that the falling yen poses to the rest of Asia and in fact the rest of the world economy.''

A currency economist Alison Montgomery with IDEA, said it is unclear whether the treasury's move is a sign the yen has peaked or amounts to little more than a ``smoothing operation '' by the government.