FOREX-Yen rises vs high yielding currencies on Japan crisis

                                
 * Japan PM: radioactive levels near nuclear plant have risen
 * Drop in Japanese shares spooks financial markets
                                
 * Higher yielding currencies fall, dollar/yen steadies
                                
 * FOMC outcome may offer longer term support to dollar
                                
 
                                
(Changes dateline, adds quote, detail, previous TOKYO)
                                
 By Neal Armstrong
                                
 LONDON, March 15 (Reuters) - The yen rose against higher
yielding currencies on Tuesday after Japan's prime minister said
radiation levels near a quake-stricken nuclear plant had become
high, prompting investors to reduce holding of riskier assets.
                                
 Trading was volatile, and the yen later trimmed some of its
gains after a 100-pip drop versus the dollar spurred vague talk
of yen-selling intervention by Japanese authorities.
                                
 Another plunge in Japanese stocks <.N225>, closing with
losses of over 10 percent on the day following Monday's six
percent fall, triggered deleveraging in global stocks
<.MIWD00000PUS>
                                
 Expectations that Japanese insurers and companies will
repatriate funds to help pay claims and reconstruction costs in
the wake of northeastern Japan's devastating earthquake had
pushed the yen to a high of 80.60 per dollar on Monday, not far
from its record high of 79.75 struck in 1995.
                                
 It was last trading at 81.54, down around 0.1 percent on the
day. <JPY=>
                                
 "Foreign investors are heavily invested in Japanese stocks
and for the moment that's leading to yen outflows which is
helping to compensate for the expectation of yen repatriation,"
said Manuel Oliveri, currency strategist at UBS in Zurich.
                                
 Finance Minister Yoshihiko Noda said he was monitoring moves
in the yen but declined to comment on whether Tokyo had
intervened in currency markets. A senior Japanese government
official said speculation was behind sharp movements in the
foreign exchange and stock markets. [ID:nLHE7EB048]
                                
 Japanese stocks plunged after the nuclear power plant
exploded and sent low levels of radiation floating towards
Tokyo, prompting some people to flee the capital and others to
stock up on essential supplies.
                                
 Prime Minister Naoto Kan urged people within 30 km (18
miles) of the facility north of Tokyo to remain indoors and
conserve power amid the world's most serious nuclear disaster
since the Chernobyl catastrophe in Ukraine in 1986.
[ID:nLDE72D2FT]
                                
 Speculation is rising that Japan could intervene to stem the
yen's gains as it could hurt the country's manufacturers, some
of which are already smarting from damage from the disaster.
                                
 The yen was broadly higher against currencies perceived as
higher risk, with the Australian dollar down 1.9 percent at
80.77 yen <AUDJPY=R> and the Canadian dollar down 0.9 percent at
83.05 yen <CADJPY=R>. The euro fell 0.5 percent to 113.58 yen
<EURJPY=R>. Traders highlighted Ichimoku cloud support at
111.34.
                                
 
                                
 FEDERAL RESERVE MEETS
                                
 One event that could lend some support to the dollar against
the yen over the longer term is a U.S. Federal Reserve policy
meeting coming up later on Tuesday.
                                
 The Bank of Japan is even more dovish than the Fed, which
has been cautious about seeking to exit its stimulus policy as
it wants to bring down unemployment.
                                
 "Today's FOMC will perhaps make the difference between the
Fed and the BOJ clearer. That could help the dollar/yen in the
longer term," said Teppei Ino, analyst at the Bank of
Tokyo-Mitsubishi UFJ.
                                
 The Bank of Japan said on Monday that it would increase the
size of its asset purchase to 10 trillion yen ($122 billion)
from 5 trillion yen and analysts think it may take more steps if
the economic outlook deteriorates further.
                                
 Implied volatilities in dollar/yen were still rising, with
the one-month <JPY1MO=> around 12.75 percent compared to 9
percent before the earthquake hit. Volatilities were still low
compared to levels above 30 percent seen around the peak of the
global financial crisis in 2008.
                                
 The dollar index, which measures its value against a basket
of currencies, climbed 0.4 percent to 76.634 <.DXY>, pulling
away from a four-month low of 76.124 hit last week.
                                
 The dollar, which investors tend to flock to in times of
financial market stress, also rose against the Australian
dollar, which slid below its 100-day moving average, down 1.7
percent at $0.9918 <AUD=D4>., a six-week low.
                                
 The euro fell 0.4 percent $1.3935 <EUR=>, holding below a
four-month high around $1.4036 earlier this month, supported by
market expectations the European Central Bank will raise
interest rates soon to keep inflation in check.
                                
 (Additional reporting by Hideyuki Sano and Masayuki Kitano,
editing by John Stonestreet)