"I am calmly watching the market now, but I can't overlook any acceleration in moves by short-term speculators" in the currency market, Jun Azumi told reporters at the Ministry of Finance. "As I have been saying, I will take decisive steps if deemed necessary."
The dollar fell to ¥76.02 Wednesday, the lowest since Oct. 31, when Japan carried out a widely publicized currency-market intervention that sold an estimated daily record of around ¥7.5 trillion. There is speculation that without official actions to bolster the dollar, it may soon drop below a record low of ¥75.31, also marked on Oct. 31, on expectations that the U.S. Federal Reserve will continue its loose monetary policy for longer and keep the U.S. currency weak.
A senior Japanese government said earlier in the day that even though the U.S. currency has held above ¥76, he finds its current levels "unpleasant."
The deputy governor of the Bank of Japan echoed Mr. Azumi's comments, saying that the central bank is ready to act.
Hirohide Yamaguchi added, however, that he doesn't think the yen's recent rise will trigger immediate policy action by the central bank because it will take time to judge the currency's trend and its impact on the economy.
The BOJ will "strive to continue to take appropriate policy responses with due recognition that there is a high degree of uncertainty for the time being, including the effects of a slowdown in overseas economies and the appreciation of the yen," Mr. Yamaguchi told business leaders in Takamatsu, western Japan.
The yen's gains in the face of Japan's economic difficulties strike Japanese officials as economically unreasonable. Recent data have shown that Japan last year posted its first annual trade deficit since 1980, prompting some economists argue that the yen's rise should end this year.
Analysts expect that data due Feb. 13 will show Japan's economy contracted by an annualized 1.5% or so in the final three months of last year due to weaker exports, which would be a sharp reversal from the annualized 5.6% rebound—after the March earthquake and tsunami—in the preceding quarter.
Since the 2008 global financial crisis, many investors have bought the yen whenever they feel uncertain over the global economic outlook, on the view that the currency is safer than other nations' assets given factors such as Japan's steady current-account surplus.
Japanese Finance Ministry officials have sought to dissaude this strategy, but BOJ Gov. Masaaki Shirakawa admitted during a parliamentary session Thursday that Japan's "relatively robust and healthy" financial system has made the yen look safe to investors.
The current round of yen strength is a major test for Japanese officials.
The U.S. and Europe have grown critical of Tokyo's attempts to weaken the yen through intervention, with their own economies needing boosts from exports. But allowing the yen to keep climbing would make Japanese exports less competitive abroad and accelerate Japan's industrial "hollowing" by making manufacturers shift production abroad.
While traders grew wary of Japanese actions, Tohru Sasaki, chief foreign exchange strategist at J.P. Morgan Chase Bank, said "we consider the possibility of intervention very low" even if the dollar breaks below ¥75 given the U.S. Treasury's foreign-exchange report issued last December.
The Treasury report contained a surprisingly strong reprimand against Tokyo's foreign-exchange intervention to weaken the yen in August and October, and argued against Japanese views that the currency market was disorderly.
Mr. Sasaki noted that because the dollar-yen rate is now even less volatile than at the end of October, "it would be difficult [for Japan] to justify interventions" to the U.S.
Public grumbling by U.S. officials could undermine the impact of Japanese action by raising doubts that Japan would be able to continue any intervention.
Japan may also need to improve policy communication with the U.S. While the Treasury report caught Japanese officials off guard, Japan's October intervention appears to have surprised the U.S. government as well, a person familiar with the issue has said. Through back-door discussions ahead of October's yen-selling, Tokyo officials had given their U.S. counterpart the impression that Japan would hold off on interventions, the person said.
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