Japan's finance ministry moved swiftly to calm markets yesterday after the dollar tumbled and Treasury yields climbed on comments made by Junichiro Koizumi, prime minister, about diversification of the country's foreign currency reserves.

Asked by a parliamentary committee about government policy on Japan's $840.6bn of foreign reserves, Mr Koizumi said: "I believe diversification is necessary." Markets reacted sharply to his comments, sending the euro to a two-month high of $1.3456 against the dollar.