By Leika Kihara and Daniel Flynn
Rising alarm over the unfolding disaster in Japan has sent shudders through world markets, hitting shares and commodities, while pushing investors toward the safe haven of government debt.
The yen soared overnight to a record high against the dollar amid speculation Japanese firms would repatriate billions of dollars in overseas funds to pay for a reconstruction bill that is expected to be much costlier than the one that followed the Kobe earthquake in 1995.
A strong yen could make it more difficult for the heavily export-dependent Japanese economy to recover from the triple blow of last week's earthquake, tsunami and nuclear threat.
But Japanese Economics Minister Kaoru Yosano told Reuters that neither currency nor stock markets were in a state of turmoil that would warrant G7 action and said Tokyo was more interested in "psychological support" from its partners.
A source from a G7 country who requested anonymity, also said the call, which is expected to take place around 2200 GMT, was unlikely to result in concrete decisions.
"It's a demonstration of solidarity and a general review of the situation," the source said.
Other G7 sources echoed that assessment of the call involving finance ministers and central bank chiefs.
Japanese military helicopters and fire trucks doused an overheating nuclear plant in the northeast of the country with water on Thursday to try to limit the damage from the world's worst nuclear accident since Chernobyl in 1986.
The G7 call suggests a heightened degree of concern among top policymakers at the threat posed by the disaster at a time when the global economy is still recovering from its worst downturn in nearly 80 years.
Europe is still wrestling with a crippling debt crisis and the U.S. Federal Reserve is still buying up domestic government debt to safeguard a stop-start economic bounceback there.
"I think the world economy is going to go right down and it has happened at a time when financial markets are still fragile," said a central banker of a G7 country who declined to be named.
Japan's triple disaster, unprecedented in a major developed economy, is already disrupting global manufacturing.
Makers of equipment for mobile telephones to carmakers and chipmakers have warned of a squeeze on their businesses given Japan's crucial role in many supply chains that keep global commerce ticking over.
The technology sector felt an immediate impact after Friday's quake and tsunami since Japan makes around a fifth of the world's semiconductors.
On Thursday, electronic conglomerate Toshiba Corp said an assembly line that makes LCD displays for smartphones and other devices would be shut for a month to repair machinery damaged by the quake.
The company's shares are already reeling on speculation its nuclear power business will suffer after governments globally have raised doubts about the industry's future.
China suspended approvals for new nuclear plants on Wednesday, effectively putting on hold the world's most ambitious expansion plan.
"IT'S MAYHEM OUT THERE"
Economists fear an extended slump for the world's third-biggest economy with a recession possibly lasting two or three quarters. The costs from the disaster are expected to reach up to $200 billion.
The effect on global growth may be more limited. BNP Paribas estimates the disaster will shave 3 percent from Japan's projected GDP this year. That would account for just 0.2 percent of world output.
But G7 financial leaders may be worried that a surge in yen repatriation could unsettle global markets, creating a crisis of confidence that spreads from Asia to Europe and the United States.
The yen soared to a record high of 76.25 per dollar, flying past its historical peak of 79.75, hit in the aftermath of the Kobe earthquake. The yen later back tracked to just below 79 per dollar.
"It's mayhem out there," said a 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."
(Additional reporting by David Chance, John Mair, Kevin Lim, Yoo Choonsik; Writing by Noah Barkin and Neil Fullick, editing by Mike Peacock)