Japanese officials blamed the yen's surge to a record high on speculators and kept markets on alert for a possible intervention ahead of Group of Seven talks later on Thursday about steps to calm financial markets roiled by Japan's deepening nuclear crisis.

The yen spiked to a record high against the dollar, while shares in Japan and elsewhere in Asia fell on Thursday after U.S. officials said the risk of a catastrophic radiation leak from an earthquake-crippled Japanese nuclear plant was rising.

The Japanese currency bolted higher amid speculation Japanese insurers would have to repatriate funds to pay for massive claims following Friday's 9.0 magnitude quake and the devastating tsunami that ravaged Japan's northeast.

But Japan's Finance Minister Yoshihiko Noda, Economy Minister Kaoru Yosano and other officials dismissed such talk and said speculation, not fund flows, was responsible for the currency's surge, which threatens to add further pressure on the quake-hit economy.

Market moves have been nervous amid speculation while trade has been thin, Noda told reporters. I will be closely watching market moves today.

Noda declined to comment on a possibility of a currency market intervention to weaken the yen, but markets interpret reminders about monitoring currency moves as a warning that the authorities could step in if they thought the yen was moving too rapidly.

While government officials were stepping up their verbal intervention, the Bank of Japan continued to pump massive amounts of cash into the money market to make sure it would not seize up, with the latest offer of 5 trillion yen coming on top of 28 trillion yen offered in same-day funds earlier this week.

Group of Seven sources told Reuters that G7 finance officials would discuss later on Thursday what to do to calm global financial markets after Friday's earthquake, tsunami and a subsequent nuclear crisis wiped hundreds of billions of dollars off global stock markets.

A senior Japanese finance ministry official told reporters G7 finance ministers would hold a conference call and discuss, among other issues, Japan's disaster and currency market.

However, there is not that much that finance chiefs can do given that the market rout is largely driven by uncertainty over how the crisis at Japan's quake-crippled nuclear power plant will play out.

Operators of the Fukushima plant 240 km north of Tokyo again deployed military helicopters on Thursday in a bid to douse overheating reactors, amid growing fears that the crisis could spin out of control.

The yen had risen 4 percent against the dollar to 76.25 yen on trading platform EBS, breaching a previous record high of 79.75 set on April 19, 1995. It later bounced back to trade around 79.60 to the dollar in choppy trade.

It's mayhem out there, said one trader at an Australian bank in Sydney. The yen's been moving a big figure a second on occasions. A lot of people are crying out for the central banks to step in.

Some currency strategists said the fact that the yen spiked in late New York trade suggested that Japanese officials were right and the surge was driven by speculation rather than significant fund flows.

Given that time zone in which the yen's rise took place, it would be speculators that bought the yen this morning, and not much-talked repatriation by Japanese insurers, said Koji Fukaya, chief strategist at Credit Suisse.

Seeking to put speculation of fund repatriation to rest, economy minister Yosano told reporters the amount of quake-related claims that Japanese insurers faced was less than 500 billion yen ($6 billion) and they had ample funds for payouts at home.

The disaster struck just as Japan's economy was just picking up after shrinking in the last quarter of 2010. The yen's surge is likely to put further pressure on the country's exporters, many of which have had to shut plants in the northeast due to a lack of power or quake damage.

Economists estimate the total cost of disaster relief and reconstruction could reach as much as 16 trillion yen ($200 billion), nearly 4 percent of gross domestic product.

Some warn that the world's-third largest economy could slip back into recession even if it should experience a growth spurt later in the year thanks to massive amounts spent on rebuilding of buildings, factories and infrastructure.

Japan's Nikkei fell more than 3 percent in early trade, with big exporters such as tech company Kyocera and car maker Honda Motor taking the most points off the index. The market later recovered some ground as the yen pulled back.

Benchmark 10-year Japanese government bond futures jumped 0.51 point to 140.23, but dropped later alongside the yen's retreat.

(Additional reporting by Leika Kihara; Writing by Tomasz Janowski; Editing by Kim Coghill)

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