"I'm not doing any trading today. It's hard to enter the market because there isn't any clear trend," said Jun Murayama, a manager at the foreign exchange and international treasury division at Sakura Bank Ltd.

The day's volatile swings were set off by a sharp fall in the euro, particulary against the yen, which also pushed the fledgling currency to a record low of $1.0628 against the dollar.

Various factors worked against the euro, including speculation about Japanese institutional investors' stance towards their euro exposure, concern about the impact of the military conflict in Kosovo, and yen-buying by French carmaker Renault.

"The euro's weakness today was very pronounced. The outlook for the euro is becoming very opaque," said Takayuki Togawa, a manager at Tokai Bank Ltd.

Meanwhile the dollar gyrated against the yen.

The dollarfell suddenly towards midday after finance minister Kiichi Miyazawa said the government may need to consider targeted tax cuts that could have an immediate economic impact.

"We may have to consider some measures that would have an immediate effect," Miyazawa said in parliament on Friday. The greenback fell nearly two yen to its intraday low of around 117.42 yen. Its decline was accelerated by dealers baling out of losing positions and options-related selling.

But the dollar jumped after hitting the low amid rumours that the Bank of Japan may have made calls to market participants and buying by Japanese institutional investors.

Dealers said the BOJ probably refrained from actually intervening in the foreign exchange market. "I think we could see verbal intervention any minute, but I don't think there will be actual dollar-buying intervention until it falls to around 115 yen," said a dealer for a Japanese bank. The Ministry of Finance (MOF) also indirectly helped boost the greenback by appealing to publicpension funds to purchase dollars through funds entrusted with life insurers and trust banks, other market sources said.

The dollar's downside is likely to be limited as Japanese monetary authorities are likely to prevent the dollar from falling towards 110 yen, said Hiromitsu Sohma, a senior economist for Japan Research Institute Ltd.

"The dollar/yen rate used by firms in setting their business plans for the current business year is 116.12 yen, according to the Bank of Japan's `Tankan' survey, and monetary authorities will probably try to prevent the dollar from falling below that level," Sohma said.

Dealers said they are also now focusing on the foreign exchange policy of the European Central Bank.

"The biggest focus of the market right now is: when will the ECB intervene to buy the euro?" said a trust bank dealer.

"The ECB is probably not very enthusiastic about propping up the euro," said Japan Research's Sohma.

"But I don't think the ECB or the United States would be willing to tolerate afall in the euro to $1.04 or $1.05," Sohma said.

The dollar stood at 118.24/29 yen by late afternoon in Tokyo, compared with 118.92/02 yen in late New York on Thursday. The euro stood at $1.0672/79 compared with $1.0694/04 in late New York.