By: Hillel Fuld

The yen declined on Wednesday as the AUD surged on faster-than-anticipated growth in Australia's economy and a moderate rebound in China's manufacturing sector. The JPY extended losses slightly after the Japanese ruling party powerbroker Ichiro Ozawa, challenging Prime Minister Naoto Kan in a party leadership vote, said in a policy statement he would enforce steps including intervention if the yen experienced a sharp increase.

The AUD increased 1.2 percent to 75.95 yen and the greenback edged up 0.3 percent to 84.47 yen In addition to the most rapid growth in three years for the Australian second-quarter GDP, talk of USD buying by Japanese investors at levels near 84.00 yen also helped push the yen to a lower point.

"Ozawa's statement was the third factor," said a trader for a major Japanese bank. Ozawa's policy statement comes at a time when market players are focusing on whether Japan will intervene to stem the yen's appreciation, although Ozawa appears to lag Kan by far, with a survey showing on Saturday that nearly 70 percent of voters want Kan to win.

Kan said last week that he will take firm steps on currencies when needed. A modest rise in China's official purchasing managers' index in August increased support to the high-yielding Australian dollar, which rose 0.7 percent on the day to $0.8990 EYES ON JAPAN'S STANCE The JPY has avoided this week's monetary easing by the Bank of Japan and is still hovering near a 15-year peak versus the dollar of 83.58 yen hit on trading platform EBS last week.

Many traders and analysts believe the dollar's decline vs the yen would have to turn much more volatile or deeper for Japanese authorities to actually take action. A sharp dip in dollar/yen, such as 1 to 2 percent or more in a single day towards the 80 yen level and below, is seen as the most likely event that would prompt Japan to stick its neck out and go long on the dollar.

But others claim yen-selling intervention by Japanese authorities may occur sooner. "Share prices have entered a danger zone, so it would not be a surprise to see it happen at any time," said a trader for a European bank.

If intervention does happen and lifts the dollar against the yen, a lot of dollar sellers are likely to emerge, he said. "There are many people who have not been able to sell as much as they want, so I think there will be selling if there is a (dollar) rebound," the trader said.