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Japanese Finance Minister Yoshihiko Noda kept up his warning to markets against pushing up the yen too much, saying that he was aware of demands from the business sector for authorities to act against yen rises that hurt the export-reliant economy.
While Noda stopped short of issuing a stronger warning that Tokyo was ready to act decisively when needed, authorities are gearing up for possible intervention as the yen heads toward the record high of 76.25 hit days after the March 11 earthquake.
The dollar fell to a record low against the safe-haven Swiss franc and a four-month low against the yen below 78 as President Barack Obama warned a deadlock in U.S. talks on the debt ceiling and a resulting default on bond obligations would be a "reckless and irresponsible outcome."
It briefly spiked in late morning to 78.75, but quickly slid back to 78.25 yen and traders said there were no signs of official intervention.
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Japanese policymakers and business leaders have become more vocal of the potential harm a strong yen could have on exports with the head of Keidanren, Japan's biggest business lobby, on Monday calling for joint Group of Seven intervention to stem yen gains.
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"I am aware there are various opinions," Noda told reporters after a cabinet meeting on Tuesday.
"Movements have been one-sided due to external factors, but I'll closely watch market moves."
The G7 jointly intervened when the yen spiked to a record high in the aftermath of the March quake, on speculation that Japanese firms would repatriate some of their massive foreign assets to pay for reconstruction.
Japanese authorities do not rule out the possibility of solo intervention with a senior finance ministry official saying earlier this month that the government could step in without warning to weaken its currency.
Intervention may now be becoming more probable, with the dollar now more than 4 yen below the rate on which big manufacturers use in their earnings forecast for the current fiscal year.
"Japanese authorities could intervene solo if dollar accelerates its fall and heads toward the all-time low hit against the yen in March. Any such move would be to slow the fall and prompt investors to readjust positions," said Satoru Ogasawara, economist at Credit Suisse.
Economics Minister Kaoru Yosano, who usually says currency levels should be set by markets, also voiced concern over the damage excessive yen rises could inflict on manufacturers.
"Because Japanese manufacturers depend heavily on external demand, an excessive rise in the yen would undermine their business plans," Yosano said.
Japanese media also quoted trade minister Banri Kaieda as saying that the Ministry of Finance and the Bank of Japan should make an appropriate decision on whether to step into the currency market.
