* Yen hits 14-year high on dollar, breaches 85 yen
* Riskier positions unwound on concerns about Dubai debt
* Japan finance minister raises prospect of G7 statement
(Updates prices, adds quote, changes byline, changes dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, Nov 27 (Reuters) - The yen hit a 14-year high against the dollar on Friday, while the greenback rose versus most other major rivals as fears of a possible Dubai debt default boosted safe-haven demand for the U.S. and Japanese currencies.
The yen later retreated versus the dollar, but it remained higher against the euro and higher-yielding currencies such as the Australian and New Zealand dollars as investors cut risk exposure.
The Bank of Japan stepped closer to currency intervention on Friday than at any time in the last five years by checking exchange rates with commercial banks. Still, market sources said intervention was highly unlikely in the short term. For details, see [ID:nT35213].
Japanese National Strategy Minister Naoto Kan said on Friday the Japanese government and the Bank of Japan will act together to deal with the rise in the yen and that he was considering measures himself.
"Clearly, it's a reduction in risk appetite as a result of the Dubai story, which is helping support the dollar and putting heavy selling pressure on risk assets across the board," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
"The yen, like the dollar, stands to benefit from a further reduction in risk appetite," he added. "Right now, I don't think the BOJ would intervene in the immediate future."
The dollar fell as far as 84.83 yen
Dubai struggled to ease fears of debt default on Thursday after its move to delay repayments at two flagship firms shook confidence in the Middle East and raised the prospect of further huge debt write-offs for banks. [ID:nGEE5AO2FN].
The ICE Futures U.S. dollar index, a measure of its value against six major currencies, was up 0.7 percent at 75.335 <.DXY>, having been up around 1 percent earlier.
The euro was down 0.8 percent at $1.4892
"It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested, but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course," said Jane Foley, chief strategist at FOREX.com.
JAPAN IN SPOTLIGHT
Earlier, Japan signaled growing discomfort with the yen's surge and suggested it would be open to a Group of Seven joint statement on currencies to stem the rise. But joint intervention was extremely unlikely, they said.
G7 countries issued a statement in October 2008 when the yen rallied against other major currencies, so traders and analysts said a joint statement was possible.
The speed and scale of dollar/yen's fall was such that a recovery was always likely, analysts say, particularly after Japan's Finance Minister Hirohisa Fujii said the moves were "extreme" and it was possible Japan could respond.
"FX markets are nervous as Dubai debt contagion fears fueled a flight to quality bid, which favored the dollar. The yen benefited via the crosses, but FX intervention risk rose significantly overnight," said Russell Bloom, analyst at Action Economics in London.
U.S. stocks opened lower while oil was down 5 percent
Implied volatilities on one-week euro/dollar currency
options
One-week implied volatilities on dollar/yen options surged
above 18 percent
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