The Bank of Japan is leaning towards easing monetary policy further at a meeting on Thursday as the yen's recent ascent to record highs and uncertainty over whether Europe can map out details on tackling its debt crisis cloud the economic outlook.

If the BOJ acts, it will likely expand its 50 trillion yen (411 billion pounds) asset-buying scheme by around 5 trillion or 10 trillion yen, sources familiar with the bank's thinking have said.

The yen slid and U.S. stocks rallied on Wednesday on news that euro zone leaders plan to boost the power of the region's bailout fund, offering some relief to Japanese central bankers gathering for the one-day rate review.

But with market jitters over Europe's debt crisis likely to persist, the central bank will be under pressure to take action to ease the pressure on Japan's economy, which is just recovering from the devastating March earthquake and tsunami.

Finance Minister Jun Azumi repeated his warning that Tokyo may intervene in the currency market and expressed hope that the BOJ will work with the government to support the economy.

We stand ready to take firm measures on currencies if necessary. I want to monitor moves during trading in Tokyo today, Azumi told reporters on Thursday.

(BOJ Governor Masaaki) Shirakawa must be fully aware of the current situation and I trust him. I expect discussions (at the board meeting) to be very positive. We want to work together with the BOJ to overcome the current situation, Azumi said.

The remark suggests the government's strong desire for the BOJ to act and heightens chances the central bank will respond with an immediate easing of monetary policy.

The yen stood at 76.20 yen to the dollar, near a record high of 75.709 set on Wednesday, keeping alive the threat of intervention by Japanese authorities who have repeatedly warned markets against pushing the yen up further.

But analysts doubt if Tokyo is ready to sell huge enough amounts of yen to turn the tide.

Japan isn't that willing to conduct intervention because of agreements with the G7, said Junya Tanase, chief strategist at JPMorgan Chase in Tokyo.

Japan's economy is recovering from the March earthquake and the BOJ has been counting on fiscal spending on reconstruction and demand from emerging markets to sustain the upturn.

RISKS HEIGHTENING

Many central bankers have been hoping to save their limited policy options for later, the sources have told Reuters, but in light of latest market worries they may not be able to do so.

Shirakawa said on Wednesday that the bank was already buying massive amounts of government bonds to keep monetary conditions ultra-easy, countering views it was not doing enough to support the economy.

But some on the board have been more pessimistic about the outlook, given growing signs that Europe's debt crisis is starting to hurt emerging Asia -- Japan's key export market.

The pessimists may get their way given the yen's renewed rise to record highs since last week and doubts that European leaders will calm markets with a plan to rein in the region's debt crisis in time to avoid a global credit crunch.

The BOJ will also issue a twice yearly outlook report in which it is expected to cut its economic forecasts on slowing global growth and to project that core consumer inflation will be stuck near zero until early 2014.

While the central bank is expected to hold to its view that Japan's economy is headed towards a moderate recovery, it will stress heightening risks from abroad and from market moves -- notably the strong yen.

The BOJ last eased policy by boosting its asset buying pool in August, acting in tandem with the Finance Ministry, which ordered Japan's biggest-ever single-day currency intervention, selling more than 4.5 trillion yen.

The impact proved short-lived, however, and the yen crawled back to trade close to its record highs.

This has been a source of deepening frustration for Japanese officials, who argue that a yen rally is one problem too many for a nation grappling with a nuclear crisis, a $250 billion post-quake rebuilding effort and ballooning debt.

(Additional reporting by Stanley White; Editing by Tomasz Janowski and Joseph Radford)