Japanese Finance Minister Yoshihiko Noda sharpened his warning to currency markets on Thursday in the wake of the yen's rise near record highs against the dollar, keeping markets jittery about the possibility of a second round of intervention.
Markets are also on guard after the Swiss National Bank said it would flood the market with even more francs to dampen demand for the currency which, like the yen, is soaring on safe-haven demand.
"We are keeping extremely close watch on currency moves, while working closely with the global community," Noda told parliament on Thursday, issuing a stronger warning than his usual phrase that he is watching markets carefully.
Prime Minister Naoto Kan also told parliament the government will consider what it can do to address what he saw as "somewhat one-sided moves" in the yen, although he did not elaborate.
Japan has kept firing warnings to markets against pushing up the yen too much, but that has not kept the currency from rising past levels that triggered last week's solo intervention.
The yen on Wednesday soared within sight of its record high of 76.25 to the dollar, hit just after the March earthquake, as investors sought refugee from risk amid heightening uncertainty over the global economic outlook.
The dollar briefly climbed to 77.23 yen on Thursday on wariness about the potential for yen-selling intervention, but soon pared gains to hover around 76.70 yen.
Adding to the woes for Japan's fragile economy, the Nikkei average fell after U.S. stocks tumbled more than 4 percent on Wednesday as rumours about the health of French banks sparked concern the euro zone's debt crisis could broaden.
Japan intervened in the currency market and the central bank eased monetary policy last week to ease the pain from sharp yen rises on the export-reliant economy. But those steps have done little to stem the broad weakness in the dollar.
Tokyo stands ready to step into the market again if yen rises persist, although market players say it may not be able to sell yen in huge amounts with its Group of Seven counterparts expressing displeasure over Japan's intervention.
If yen rises persist, the BOJ may also face pressure to ease monetary policy further even before its next rate review in September, analysts say, although the chance of this is slim.
BOJ officials do not rule out the possibility of further monetary easing with Governor Masaaki Shirakawa stressing that the central bank will take appropriate action if the economy's recovery prospects come under threat.
But he has also signalled that the BOJ has done what it can for now and hopes to spend more time examining the effect of last week's monetary easing. (Editing by Chris Gallagher)