Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa discussed the yen and agreed to work closely in a phone conversation on Monday, but Kan did not ask the central bank to make any monetary policy changes.
Chief Cabinet Secretary Yoshito Sengoku also said the talks did not touch on currency intervention, after the yen recently hit 15-year highs, but declined to comment on whether the two men discussed the possibility of additional monetary easing.
The prime minister did not make any request on monetary policy to the central bank chief, Jiji news agency reported later, citing a BOJ source.
They exchanged views on the economic and financial situation including foreign exchange, Sengoku told a news conference. They agreed that it was important for the government and the BOJ to communicate closely with each other.
Sengoku added that the government wanted to consider whether Kan and Shirakawa should meet in person, although he did not give a timeframe.
Sources had told Reuters that Kan and Shirakawa may meet on Monday to craft a response to the surging yen JPY=, which is trading around at its highest level against the dollar since 1995, threatening to dent Japan's export-reliant economy.
Markets have been rife with speculation that the BOJ may try to pre-empt government pressure for action and further loosen its already ultra-easy policy at an emergency meeting before or shortly after the talks between Shirakawa and Kan.
But sources say the BOJ is unlikely to act before its next regular policy meeting on Sept. 6-7 unless the yen heads towards its all-time high past 80 to the dollar at a pace of 2 to 3 yen per day. [ID:nTOE67I06G]
The dollar edged down to 85.30 yen from around 85.45 yen after Sengoku's comments, partly on disappointment that no firm commitment to a policy response came out from the talks.
There is a sense of disappointment and it is in doubt whether anything was decided, said Hideki Hayashi, global economist at Mizuho Securities' fixed income research department.
Hayashi said the chat was also part political performance ahead of a Sept. 14 ruling Democratic Party of Japan (DPJ) DPJ leadership vote, in which Kan could face a challenge from party powerbroker Ichiro Ozawa, or a proxy candidate.
Stock and bond markets showed muted reaction to Sengoku's comments.
So far the impact appears pretty limited -- Nikkei futures in Singapore aren't really falling. But I think this has made the Nikkei easier to sell, the fact that no new policy has come out and it just ended with a phone call, said Hideyuki Ishiguro, a strategist at Okasan Securities.
There's likely to be some influence on the Nikkei from currencies as a result. It's not a good factor, that's for sure.
Government bond yields at the short end of the curve eased to multi-year lows and the yield curve flattened last week as investors priced in the chance that the BOJ could ease policy to help combat yen strength and support the economy.
Markets watchers, however, note the central bank's options are limited and say policymakers can do little about the firming yen, which has jumped nearly 9 percent this year as a flood of weak U.S. economic data undermined the dollar. (Additional reporting by Chisa Fujioka, Writing by Leika Kihara; Editing by Kim Coghill)