Junichiro Koizumi was asked in parliament whether the country's foreign-exchange reserves, which are the world's largest stockpile, needed to be diversified as they are mostly held in dollar-denominated assets.

``I think it is necessary to have diversity,'' he said. ``At the same time, taking into account what is profitable and what is safe, the overall situation must be considered.''

While Koizumi didn't make it clear in answering the question whether he was referring to Japan's reserves, his words sparked an instant dumping of dollars against most currencies.

The selling pushed the greenback to a low of 103.73 yen from around 104.00 yen immediately before the remarks, and to a new nine-week low of US$1.3456 to the euro from about US$1.3395.

Japanese currency authorities were quick to try to quell the market reaction. A Finance Ministry official soon after repeated the ministry's official stance: ``We aren't thinking of changing the currencies within our reserves.''

To emphasize that Koizumi's remark didn't constitute any change in policy, the official added that Japan ``could diversify within our dollar-denominated assets.''

The official's clarification provided some relief to the dollar, pushing the greenback back to around 104.00 yen and to US$1.3420 to the euro. In late Asian trade, the dollar was quoted at 103.82 yen and US$1.3444 to the euro.

Koizumi's remarks hit a chord with investors that have dollar-denominated assets and are worried that Asian central banks with large dollar-denominated reserves will start to diversify into other currencies to spread the risk of losses on these assets. Given the size of these reserves, diversification has the potential to push US asset prices sharply lower. Japan alone had foreign-exchange reserves in February totaling US$840.56 billion (HK$6.55 trillion). Analysts say that some investors are already switching out of dollar-denominated securities.

``While a bit unclear, [Koizumi's] statement accelerated a trend for market participants to get out of dollar assets that has come back into markets in the past several days,'' Minoru Shioiri, a senior manager of foreign exchange at Mitsubishi Securities, said. ``The dollar fall could pick up in coming days.''

Market players say money now shifting out of dollars on a global scale is heading not only for other currencies, but also for oil and other commodities.

``Recent high oil prices are one example of such a shift,'' Masaki Fukui, a senior vice president of Mizuho Corporate Bank's foreign-exchange division, said. ``The dollar sell-off Wednesday was just another example.''

Light, sweet crude oil futures prices on the New York Mercantile Exchange have risen sharply this month due mainly to strong buying by noncommercial investors. The front-month April crude contract rose Wednesday to US$54.77 a barrel, up 18 cents from the settlement price of the previous day's trade.

Still, traders say it is too early to judge whether the rekindled trend of dollar selling will result in the greenback falling toward 100 yen, a level that would prompt the Finance Ministry to seriously consider intervening to support the dollar.

For one thing, Koizumi's remark was used as an excuse by traders to move the dollar after several days of narrow range trading between 104 yen and 106 yen.