The yen fell sharply against other currencies yesterday when it was revealed that the country's central bank governor had invested in a fund run by Yoshiaki Murakami, who was arrested last week on suspicion of insider trading.

This morning the yen stood at 211.62 to the pound and at 114.84 to the US dollar. The greenback stood at 1.8430 to the pound and at 1.2593 to the euro.

The revelations from Bank of Japan (BoJ) governor Toshihiko Fukui saw the biggest single-day drop on the Tokyo Stock Exchange since the September 11, 2001 attacks on the United States.

"It is true that I provided financial resources to him so as to support his initial lofty vision," Mr Fukui told a financial affairs committee of the upper house of the Japanese parliament.

Mr Fukui invested 10 million yen in the fund seven years ago, and had earned profits before closing his involvement some months ago.

Despite the revelations, in a country where corporate honour is paramount, the Japanese government vowed to stand by Mr Fukui and said he would not be replaced.

Mr Fukui "is trusted by financial markets, as well as the public. We confidently brought him on board as the governor in 2003 on the view that he is an extremely capable person", government spokesman, chief cabinet secretary Shinzo Abe, said.