The pound fell two per cent versus the yen on Wednesday as carry trades which had underlined the UK currency's value continued to unwind.

Sterling was trading at ¥226.50 at the close of business on Wednesday in London, while the euro closed at ¥155.50 after hitting a low of ¥152.67 earlier in the day.

An earlier slide in the value of the Japanese currency was corrected after jittery stock markets rallied and traders felt more comfortable with potentially risky positions.

Markets remained cautious in the face of poor US economic data however, with recurring concerns that the slump in the housing market could infect equities.

"Near-term position adjustments to pare back risk portfolios appear to have progressed quite a lot, but it's too early to say investors are ready to resume risk-taking fully," Mizuho Corporate Bank dealer Yuichiro Harada told Reuters.

"Market players are still unsure how much more there is to dollar-selling momentum. There is still no sense of direction in the market," he said.