By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) - Japan's finance minister sharpened his rhetoric on the yen's steep gains after the Nikkei newspaper reported Japan may consider selling the yen in solo intervention if speculators drive it up, threatening the economy's recovery.
Finance Minister Yoshihiko Noda told reporters he would respond appropriately as needed, an expression he has not previously used in his campaign to talk the currency down. Noda was to meet Prime Minister Naoto Kan and other ministers later.
Market players, however, questioned whether intervention alone would do much to stem a rise that took the yen to a 15-year high against the dollar and a nine-year peak against the euro on Tuesday, battering share prices in turn.
"The dollar went to 83 yen, so the chance of intervention has increased, but it would take more than intervention," said Kiichi Murashima, an economist at Citigroup Global Markets in Tokyo. "It has to be coupled with easing by the BOJ to have any impact."
The sharp yen rise and declines in the Nikkei average <.N225> have made it more likely that the Bank of Japan will further ease its monetary policy before its scheduled rate review on September 6-7, sources told Reuters.
But speculators doubt the Bank of Japan is ready for drastic steps.
"If they really want to do something on the yen ... they have to create inflation expectations," said Martin Schulz, a senior economist at Fujitsu Research Institute.
"But I don't think the BOJ would go in that direction."
TOUGHER TALK, PARTY DISARRAY
The yen has risen nearly 10 percent against the dollar so far this year, with the U.S. currency weighed down by doubts about the U.S. recovery and falling Treasury yields, along with other global factors that Tokyo has little power to influence.
The Nikkei newspaper said Japan's finance ministry would consider intervening unilaterally if its currency rose at a pace of several yen against the dollar in a single day.
The dollar sank as low as 83.58 yen at one point on Tuesday. By midday on Wednesday it was around 84.40 yen, helped by the Nikkei report.
The euro fell as much as 2.2 percent to 105.44 yen on Tuesday. It was around 106.90 yen on Wednesday.
Japanese policymakers have tried to stem the yen's gains with verbal intervention, and Noda expressed Tokyo's increased irritation with the currency's climb on Tuesday.
That failed to keep traders from pushing the yen to new highs, and on Wednesday he toughened his rhetoric.
"When necessary we must respond appropriately," he told reporters when asked about yen moves.
Seeming disarray in the ruling Democratic Party as speculation simmers that Kan may face a challenge in a September 14 party leadership vote is adding to a perception that policymakers will not act decisively, even as experts agree the options are limited.
The government is working on a package of steps to help the economy without further ballooning a massive public debt, but the content might shift depending on the party vote's outcome.
Japan has not acted in the currency market since ending in 2004 a massive yen-selling intervention aimed at keeping a rapid yen rise from deepening deflation and hammering the economy.
Annual growth in Japan's exports slowed less than expected in July, finance ministry data showed on Wednesday, due to a pickup in shipments to the United States in Europe.
Yet economists still expect export growth to slow in the coming months due to signs the global economic recovery is faltering.
A rising yen adds to worry by making Japan's products more expensive overseas and reducing the yen value of profits.
BOJ LINES UP OPTIONS
Japanese companies have become more resilient to yen strength and enjoyed a sharp jump in profits for the April-June quarter, but every 1 yen rise against the dollar will trim recurring profit at major manufacturers by 0.9 percent this fiscal year, according to an estimate by Nomura Securities.
Tokyo will probably have difficulty convincing its U.S. and European counterparts to jointly step into the markets, given that a weakening of their currencies is helping their exports.
Noda declined to comment on talk he might meet U.S. Treasury Secretary Timothy Geithner, as did a U.S. Treasury official.
But solo intervention by Japan is unlikely to have much effect in curbing yen gains, traders say, and for weeks markets have speculated that the authorities would rather cool off the yen's rally with some form of monetary easing.
The central bank is lining up its options, although officials are divided on whether to do so before its September 6-7 regular rate review or at an emergency meeting.
The most likely scenario is for the BOJ to increase the size or extend the duration of a short-term fund supply scheme put in place in December, sources familiar with the matter say.
The Nikkei also said the BOJ is considering taking additional monetary easing steps and may do so at an emergency meeting.
(Additional reporting by Rie Ishiguro and Yoko Kubota; Writing by Linda Sieg and Stanley White; Editing by Tomasz Janowski)
