The yen slipped yesterday when North Korea said it would conduct a nuclear test, after earlier strengthening on market speculation policymakers were concerned about the euro’s lofty levels against the Japanese unit.

The euro dropped around half a yen early in European trade as traders reported mounting speculation over possible intervention – verbal or otherwise – from either Japanese or European monetary authorities to bring euro/yen down.

Fuelling this speculation, Japanese news agency Jiji, without quoting official sources, reported market concerns that further euro appreciation against the yen could prompt euro-selling intervention from Japan’s ministry of Finance.

But North Korea’s statement that it will conduct a nuclear test jolted the market and weighed heavily on the yen, the most liquid Asian currency.

“There was speculation about the ECB checking rates, and there was the Jiji story, but it was all just speculation,” said Kamal Sharma, currency strategist at Bank of America.

“Then we had geopolitical risk from the North Korea story, so euro/yen is back to where it was.”

The euro was steady on the day at 149.88 yen, rebounding sharply from the day’s lows of 149.59. It rose as far as 150.22 after the North Korea report, around half a yen away from the record peak set in late August.

The yen also slipped to a month low against sterling of 222.60 yen, and reversed earlier gains against the dollar to trade flat on the day around 117.73 yen.

The yen’s trade-weighted value fell to its weakest level in 21 years in September, according to the Bank of Japan’s yen index.

Market participants have been wary about central bank reaction to euro/yen strength over the past month, and some politicians commented on that strength in the run-up to and following the mid-September G7 meeting.