Japanese Finance Minister Yoshihiko Noda said on Saturday he was ready to employ all possible measures to tackle the soaring yen, which was having a big impact on the country's export-led economy.
Speaking in China's capital, Noda told reporters he wanted the Bank of Japan to guide policy while sharing its views on the economy with the government.
He also said there was room for Japan's central bank to improve the monetary situation, but it was up to the bank to consider specific policy steps.
The yen hit a 15-year high against the dollar this week, and Tokyo is scrambling to craft a package of steps to prop up its stuttering economy while keeping up pressure on the BOJ to do more to pull the country out of deflation.
The yen, which surged to 83.58 per dollar on Tuesday, was hovering just above 85 on Saturday.
Many people are worried and the government is taking a serious view, and we must adopt all possible measures, Noda said, after meeting Chinese Finance Minister Xie Xuren on the sidelines of a Japan-China economic dialogue.
Noda urged China to make its yuan currency more flexible and said Japan would announce its basic policy on an economic package next week.
We will take decisive measures when necessary while watching market trends with great interest, Noda said, echoing comments the previous day from Prime Minister Naoto Kan that signalled possible currency intervention.
Noda also said he expected Kan to meet BOJ Governor Masaaki Shirakawa as soon as possible after the central bank chief returns from the United States on Monday.
The BOJ may hold an emergency meeting early next week to ease monetary policy, a source familiar with the matter said.
China, meanwhile, should continue making steady efforts to make its currency more flexible, Noda told reporters. The yuan has appreciated about 0.4 percent against the dollar since it was lifted from a nearly two-year peg on June 19.
Japan has not intervened in the currency market since March 2004, when a 15-month yen-selling spree came to an end. During that period, they sold 35 trillion yen ($410 billion), the equivalent of more than one-third of the annual budget.
Despite the risk of possible action by Japanese authorities to curb yen strength, such as currency intervention or monetary easing, some traders and investors say the yen could still test a record high of 79.75 yen to the dollar, hit in April 1995.
(Reporting by Tetsushi Kajimoto; Editing by Nick Macfie, Ken Wills, John Stonestreet)