Yen jumps as Japan's Omi warns on one-way risks

TOKYO, June 26 (Reuters) The yen jumped on Tuesday, pulling away from a 4-1/2-year low against the dollar hit last week, after Japan's finance minister warned that markets should be aware of the risks of one-way bets.

The comments by Koji Omi echoed remarks made by officials at recent Group of Seven meetings referring to carry trades and suggested some concern about the pace of the yen's slide.

It was the second time in the past few weeks Omi tweaked his usual comments on currencies at a regular press conference, having started to say earlier this month he was watching the market carefully.

''Traders are wondering if Japanese authorities are attempting to stop the yen's fall before dollar/yen reaches 125,'' said a senior trader at a Japanese bank.

Omi's remarks also come as investors have fretted about whether authorities in Switzerland and Taiwan were trying to spook the market from using their currencies in carry trades by pushing short-term interest rates higher.

The popularity of carry trades -- borrowing funds in low-yielding currencies such as the yen to buy higher-yielding assets -- has been one of the driving factors in the yen's broad slide to a 20-year low against the New Zealand dollar and a 15-year trough against the pound.

The dollar fell 0.2 percent from late U.S. trade to 123.39 yen down from a 4-1/2-year high of 124.14 yen reached on electronic trading platform EBS last week.

The euro dipped 0.25 percent to 166.07 yen from near 166.50 yen, off the record peak of 166.94 yen hit last week on EBS -- the highest since the single currency was first launched in 1999.

The euro changed hands at $1.3458 down slightly on the day.

A drop in Japanese shares also kept the market on edge for any potential rush out of risky positions such as carry trades.

The Nikkei share average fell 0.4 percent, tracking a drop in U.S. stocks on worries about Bear Stearns bailing out a second hedge fund it manages that invested heavily in the risky mortgages to households with poor credit histories.

The worries about a further drag on the U.S. economy from the housing troubles has also pulled benchmark Treasury yields away from a five-year peak struck earlier in the month, removing some of the dollar's relative yield appeal.

Market players were awaiting the Federal Reserve's policy meeting this week for clues on the central bank's thinking about the economy's health. The Fed ends a two-day meeting on Thursday.

Signs of a rebound in U.S. growth have slashed expectations for the Fed to trim rates from the current 5.25 percent later in the year, helping the dollar recover from a record low against the euro and a 26-year trough versus the pound both struck in April.

REUTERS SRS BST0703