* USD hits 8-month low of 88.23 yen as stop-losses triggered
* But USD recovers after Fujii says moves becoming one-sided
* Long pound/yen positions being unwound
By Satomi Noguchi
TOKYO, Sept 28 (Reuters) - The yen jumped to an 8-month high against the dollar on Monday but later lost ground as Japan's finance minister tried to tone down earlier comments suggesting intervention was unlikely, remarks that had prompted speculators to pile into the rise.
The yen's advance had been helped by reported comments by Finance Minister Hirohisa Fujii that recent dollar/yen moves were not abnormal.
But later in the day, Fujii told a Bloomberg seminar that he had never said he approved of a strong yen and that he had never said he would leave a yen rise "as it is".
"Fujii seems to have tweaked the tone of his comments on the yen after being viewed as naive for his previous remarks which had encouraged speculators to buy the yen," said Toshihiko Sakai, a manager of forex trading at Mitsubishi UFJ Trust Bank.
Nonetheless, traders said many still did not expect Japanese authorities would intervene to sell yen at current levels and the dollar would have to fall below its January low of 87.10 yen before the market had to seriously consider the possibility of intervention.
The dollar earlier dropped as low as 88.23 yen, its weakest since late January when it hit a 13-year low of 87.10 yen, driven largely by speculative yen buying.
It then recovered to trade at 89.55 yen, down just 0.2 percent on the day, as Japanese importers bought it to settle payments at the end of the fiscal half-year on Wednesday and as speculators covered short positions.
Japan intervened earlier in the decade to weaken the yen as this helped keep its competitive advantage in global trade but it has not done so since 2004.
Traders said the yen buying trend had yet to run its course and intervention would in any case be difficult for any major economy these days, as it was seen as protectionist, something authorities wanted to avoid.
POUND/YEN HAMMERED
Large margin calls on pound/yen longs had also been behind the early yen buying.
The pound fell sharply to $1.5770, its lowest since late May, breaking below support for sterling at around $1.5800. It was hammered against the yen, falling 1.6 percent and briefly dropping below the 140 yen mark, its lowest since late April.
The pound has been under pressure after Bank of England Governor Mervyn King said last week that a weak pound would help exports and the UK economy.
"Continued speculation that they (Japan) will not intervene has led to capitulation of short-yen positions, led by the sterling/yen cross," said Sue Trinh, senior currency strategist at RBC Capital Markets.
Data from the Commodity Futures Trading Commission showed net short positions in the pound more than doubled to 31,595 contracts in the week to Sept. 22 from 12,487 a week earlier. Long positions on the yen rose to a net 45,615 contracts from 37,107..
The euro fell 0.6 percent to $1.4600, dragged down by its fall against the yen and erasing gains against the dollar made on Friday when data showed U.S. consumer sentiment hit its highest level this month since January 2008..
Against the yen, the euro fell as low as 129.84 yen on EBS, as euro long positions versus the yen were unwound below 130 yen mark, traders said. It stabilised at 130.70 yen, down 1 percent on the day.
The Australian dollar fell 0.6 percent to $0.8636 and at one point dropped more than 1 percent to 76.55 yen. (Additional reporting by Anirban Nag in Sydney and Rika Otsuka in Tokyo; Editing by Edwina Gibbs)