The yen slipped on Tuesday and was pinned down near recent multi-year lows after the Group of Seven countries issued a statement seen as giving the market a green light to drive the Japanese currency even lower.

The G7 said it remained committed to market-determined exchange rates and added that fiscal and monetary policies should not be directed at devaluing currencies. The group said policies would remain oriented towards domestic objectives.

Strategists said the yen's weakness, driven by the new Japanese government's demands for aggressive easing of monetary policy to beat deflation, would persist and investors would buy the dollar and the euro on dips making any yen rebound short-lived.

The G7 statement was also seen as pre-empting any criticism of Japan at a meeting of G20 finance chiefs later in the week.

"The statement indicates that there will be little attempt to single out Japan as a currency manipulator at the G20 meeting as long as the Japanese policies deal with domestic issues like deflation and are not targeting the yen," said Valentin Marinov, head of European G10 FX strategy at Citi.

"Presumably that will encourage investors to continue doing what they are doing, that is - sell yen across the board."

The dollar was at 94.30 yen, not far from Monday's high of 94.465 yen, which was its strongest since May 2010. Traders cited options barriers at 94.50 yen and 95 yen which could check the dollar's gains for now. The dollar has risen 8.5 percent against the yen so far this year.

The euro rose 0.2 percent to 126.80 yen, approaching February 6's near three-year high of 127.71 yen. The common currency has risen more than 10 percent against the yen, leading to strong protests from some European leaders that a strong euro would hurt a fragile economic recovery.

The euro jumped to a session high of 1.2356 francs on trading platform EBS after Swiss National Bank chief Thomas Jordan said that the franc cap would remain in place and that he expected the currency to ease against the euro.

"The G7 statement was nothing unexpected. Policy actions speak louder than words and what we are seeing is that Japan, Switzerland, the UK are all looking to print money," said Adam Myers, European Head of FX Strategy at Credit Agricole.

Major central banks, having already lowered official interest rates to near zero, print more money to support flagging economic growth, but this drives down the value of their currencies.

Comments by U.S. Treasury Under-Secretary for International Affairs Lael Brainard on Monday that the United States supports Japanese efforts to end deflation were also interpreted by markets as an acceptance of a weak yen.

She stressed that the G20 needed to deliver on a commitment to move to market-determined exchange rates and refrain from competitive devaluation.

EURO FIRM

The euro rose against the yen and the dollar after the G7 statement. The single currency was up 0.3 percent on the day at $1.3440, breaking through option barriers at $1.3450.

Traders will keep an eye on European Central Bank President Mario Draghi who is due to address Spanish lawmakers later on Tuesday to explain and defend the ECB's current policy strategy against a backdrop of heightened concerns about the strong euro.

Draghi is also expected to meet Spanish Prime Minister Mariano Rajoy, but the market does not expect them to discuss a potential aid request by Madrid that could trigger the ECB's bond purchase scheme.

Concerns about a bailout for Cyprus, about a Spanish political scandal and about Italy in the run-up to February 24-25 elections are likely to check gains in the euro.

"We stick to our cautious euro view, in particular against the dollar and ahead of Italian elections at the end of this month," Credit Agricole's Myers said.

(Additional reporting by Anooja Debnath; Editing by Nigel Stephenson and Hugh Lawson)