The dollar plummeted against the yen yesterday amid rumors that the Bank of Japan would continue to press the U.S. currency down, but the dollar rallied against major European currencies.

Most attention was on the yen, which strengthened following a report that the Bank of Japan had targeted it at between 210 to 220 to the dollar. The central bank denied that it had set that goal, but the dollar plunged anyway from 226.65 yen to 220.75 yen.

According to reports from Tokyo, the Bank of Japan said it will intervene in the foreign exchange market indefinitely. The central bank reportedly sold $1 billion on both Tuesday and Wednesday, and along with the German central bank sold more dollars yesterday. Analysts said that there didn't appear to be much intervention by other central banks yesterday.

A Bank of Japan official was quoted in Japanese newspapers as saying that the dollar-yen rate had been a major issue in discussions of the central bankers and finance ministers on Sunday, although public statements issued after the weekend meeting were not that specific.

Traders in the United States reacted on rumors that Japanese officials didn't feel the yen had risen high enough against the dollar, despite protestations from Japanese officials that they have set no official target for the yen.

A large part of the protectionist sentiment in Congress has been aimed at Japanese imports and the inability of U.S. manufacturers to export to Japan. Japan's surplus with the United States is expected to grow this year from about $36 billion to a record $50 billion.

Foreign currency traders exchanged European currencies for dollars yesterday because they were skeptical about further action by the United States and four of its allies to push the dollar down, financial analysts said. The United Srates, France, Britain, West Germany and Japan said they would coordinate efforts to push down the dollar as a means of improving the U.S. trade deficit and forestalling protectionist actions by Congress.

The dollar was still below the levels reached Monday, when it took its sharpest fall in 12 years.

"Most of the people are sitting on the sidelines," said James Bovery, a trader at Irving Trust Co. "There's not a lot of corporate demand. Speculators are very wary" for fear that the central banks of Japan and West Germany and the Federal Reserve Board will intervene to push down the dollar.

When central banks intervene to lower the dollar, they sell dollars and purchase other currencies. This makes the dollar more plentiful and thus drives down its price.

If there is no intervention today, Bovery said it is doubtful there will be much movement in the dollar.

Albert Soria of Swiss Bank in New York said the upward movement in the dollar yesterday was the result of people buying dollars after overselling in previous days. "It's too early to tell whether it's a testing of the intention" of the five central banks to move the dollar down.

The foreign currency markets are expected to continue to be volatile, requiring more intervention by central banks, Soria said. The banks "have sold some dollars . . . they've succeeded in talking the dollar down," he said.

One closely watched event today will be the release of the U.S. merchandise trade figures for August, analysts said. The markets expect the trade deficit to be close to $13 billion. If the figures come in less than that, it could strengthen the dollar but increase the likelihood that the central banks will try to push it back down, analysts said.

The pound rose against the dollar in London, but it fell in New York, dropping to $1.4241 from $1.4456.