The yen traded flat against the dollar Wednesday, a day after sharply rising, as investors grew cautious ahead of a meeting of finance ministers and central bankers later this week where exchange rates are expected to be a hot topic.
Comments from Russia's deputy finance minister, Sergei Storchak, that the Japanese currency had definitely been over-valued and "there are no signs" Japanese authorities were intervening weighed on the yen. Investors viewed his comments as a nod to the yen's weak trend.
There was uncertainty related to this week's meeting of the Group of 20 developed and emerging-market economies in Moscow and the general view that yen weakness would be on the agenda.
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There was also nervousness concerning the Italian elections and the sale of Italian government bonds at higher yields.
"There's a lot more two-way risk in the yen right now, because of an increase in risk aversion," said Samarjit Shankar, director of market strategy at BNY Mellon in Boston.
He added that while some Group of Seven officials have said Japan was not being singled out in the group's statement issued on Tuesday, the consensus among investors is that the G7 is not exactly thrilled with the weak yen trend.
That said, the G7's complaints against a weak yen won't stop the currency from sliding.
"This G7 signpost is just a speed limit for dollar/yen's ascent, not a stop sign," said Dan Dorrow, head of research at FX broker Faros Trading in Stamford, Conn.
In late afternoon trading, the dollar was slightly down at 93.47 yen, below a three-year high of 94.42 yen on Monday. The euro was last at 125.70 yen, flat on the day and far from a 34-month high of 127.71 hit last week.
The yen rallied on Tuesday after a G7 official said an earlier statement from the group was meant to signal worries about excessive moves in the yen. Canadian Finance Minister Jim Flaherty on Wednesday said the statement was a consensus effort and not meant to single out Japan.
Moreover, Bank of England Governor Mervyn King said the statement should be taken at face value and anonymous officials should not try to reinterpret it.
(Read more: Don't Overthink G-7 Communiques: Strategist)
The yen lost nearly 20 percent against the dollar between November and early February, picking up speed as Japan's new government put pressure on the Bank of Japan to ease monetary policy more aggressively to defeat deflation.
Markets were also likely to tread cautiously until the outcome of a BoJ meeting that ends Thursday, although many expect the bank to hold off any fresh easing measures until April when it will meet with a new governor at the helm.
The euro traded flat at $1.3450. Some strategists said the euro also would be largely sidelined before the G20 meeting, although it could come under pressure if euro zone gross domestic product data on Friday shows the economy contracting.
An Italian auction Wednesday morning that fetched higher yields for the first time since October weighed on the euro, analysts said.
BNY Mellon flows data showed Italian bonds have been net sold for eight consecutive sessions, while the euro has been sold for four straight days.
(Read More: G20 to Skirt Potholes as World Economy Recovers)
"The euro's resilience of late is proving to be a double-edged sword," said BNY Mellon's Shankar. "The single currency's recent appreciation is likely to be a source of worry vis-a-vis the euro zone's deteriorating export competitiveness."
The euro has retreated from a 15-month high of $1.3711 hit at the start of February. It extended losses last week when European Central Bank President Mario Draghi warned of downside risks to the euro zone growth outlook.
Among corporations, however, the view on the euro remained positive, with option strike prices on the three- to six-month tenors starting from $1.40-$1.42, said Andres Bergeron, vice president and chief corporate trader at Bank of the West in San Ramon, Calif.
Also on Wednesday, the British pound fell to multi-month lows after the Bank of England said inflation would stay higher for longer and its governor cautioned that further bond-buying to boost the weak recovery might have limited impact.
Sterling fell 0.8 percent to $1.5542.