Financial markets are waiting to pounce on Japan after it emerged from a drubbing at the hands of the US in the latest Group of Seven meeting over the weekend.

Further jumps in the yen's value are now expected after the G7 nations made it clear they did not intend to intervene in the market to slow the currency's rise.

Instead, the G7 backed the US call for more balanced growth in the world, especially from sluggish Japan where the answer was not the currency but structural reform.

US Treasury Secretary Mr Lawrence Summers, frustrated that the world has been overly reliant on strong US growth, demanded its old sparring partner bow to demands for deregulation. Japan had committed itself to "domestic-demand-led growth and avoiding deflationary pressures", Mr Summers said after Saturday's G7 meeting of finance ministers and central bankers.

"What will be most important going forward is the way in which those commitments are carried through." In a statement after the one-day meeting of finance ministers and central bankers, the G7 paid ritualistic observance to Japan's insistence the strong yen was choking off exports and endangering its economic recovery.

But diplomats indicated that references to the yen were mere lip-service, and seized on a minuscule change of wording from last September's G7 statement as speaking volumes.

Last time round the G7 ministers and central bankers said they "shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy and the world economy". This time, in an extraordinary display at the German and Italian press conferences following the meeting, officials declaimed like actors in reading out the relevant portion of text to indicate the change of emphasis.

The yen was a matter of "their concern, which we share", read Germany's Deputy Finance Minister, Mr Caio Koch-Weser. "Although the statement is mentioning the yen, we don't think there are risks," said his boss, Mr Hans Eichel, for good measure.

"We didn't discuss any concerted intervention," added Italian Finance Minister Mr Giuliano Amato, who also focused on the yen passage highlighted by the Germans.

Mere semantics maybe, but financial markets are alive to the febrile atmosphere in which international diplomacy is conducted. "While the message was basically the same, the markets will have realised after yesterday that the US and Europe just don't care about this exchange-rate preoccupation of Japan's," said Barclays Capital economist Mr Hiroshi Kuribayashi.

"The Americans and Europeans realise exchange rates matter much less than macroeconomic restructuring," he said, pointing to the Europeans' victory in ensuring there was no mention of the euro's weakness in the G7 statement.

With Japan failing again to win a promise of co-ordinated intervention to hold down the yen, the Japanese currency looks set to resume a rally which has seen it gain about 40 per cent against the dollar in the past 18 months.

"Speculative market players could challenge the yen's high and try the 100 level from nearly 105 now against the dollar," Mr Kuribayashi said.

Mr Peter Morgan, senior economist at HSBC Securities, agreed there would be "more upward pressure" on the yen as a result of the G7 meeting.