The yen weakened the most in six weeks versus the dollar after Bank of Japan Governor Masaaki Shirakawa said the economy is in a "very severe" state, fueling bets monetary policy may be eased further.

The Japanese currency declined against all 16 of its most- actively traded peers. The euro gained for a second day against the dollar as European finance officials meeting in Brussels endorsed a bailout for Portugal, boosting confidence that the region's debt crisis will be contained.

"Long-term investors see more yen weakness ahead," said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. "Central banks around the world are raising rates, except Japan. There's potential for more easing-type measures. The market is getting a sense of this."

The Japanese currency declined 1.1 percent to 81.67 per dollar as of 10:41 a.m. in London, its steepest depreciation since April 1, based on closing prices. The yen weakened to 115.95 per euro from 114.37 in New York yesterday. The European common currency rose 3 percent to $1.4200.

Eoin Treacy's view Multilateral intervention announced in March signaled a change to the Bank of Japan's attitude to the strength of the Yen. The currency weakened and unwound the abrupt rally which followed the tsunami. Over the last month, the Yen rallied as investors began to question the commitment of G7 central banks to weaken the currency particularly as concerns over Eurozone sovereign debt took centre stage. However, Japan's economy remains in crisis. The nuclear accident will take time to fix. Alternative power capacity will have to be made available and the country's exporters will take time to return production to normal levels. Monetary policy is likely to remain accommodative for the foreseeable future.

Today's downward dynamic by the Yen, across a range of currency pairs, signals a peak of at least short-term significance and potentially medium-term importance. Additional follow through will be required to confirm the signal and defray the possibility that this was a one-day event. Against the US Dollar, the Yen rallied to test the upper side of the six-month range and appears to have encountered resistance. A sustained move above the early May peak would be required to question potential for some additional downside.

The Yen has not been as strong against the Euro and has posted a progression of lower or equal major rally highs since August. Today's downward dynamic suggests at least a short-term peak has been reached and a sustained move above 0.88 would now be required to question potential for some additional downside.

The Yen lost momentum against the Pound a year ago and has trended downwards since January. It encountered resistance near 0.77 this week and a sustained move above that level would be required to question potential for some additional lower to lateral ranging.

The Yen has trended consistently lower against the Swiss Franc for the last year. It appears to be encountering resistance in the region of CHF1.1 and a sustained move above that level would be required to question current scope for some additional weakness.

The Yen has been largely rangebound against the Singapore Dollar since early 2009 but has exhibited a downward bias over the last year. It has at least paused near S$1.55 over the last few weeks and a sustained move above that level would be required to question current scope for some additional downside.

With the exception of the brief post tsunami rally, the Yen has trended relatively consistently lower against the Australian Dollar over the last year. It now appears to be in the process of encountering resistance near A$1.20 and a sustained move above that level would be required to question potential for additional weakness.

David has often said that happiness in the currency markets is when we have the trend and the central bank on our side. In the competitive world of globalization no country wants a strong currency but some need a weak one more than others and at present Japan is the top of that list. The commonality of the Yen's weakness this week suggests that the currency may once more becoming the subject of bearish interest. Countermanding upward dynamics would be required to question current scope for some additional weakness.