UPDATE 2-Japan boosts FX monitoring, creates $100 bln credit line

* Noda warns ready to take decisive FX action if needed

* BOJ says watching yen moves' impact on economy

* Markets doubt effect of steps; focus on intervention

(Adds analyst quotes, details)

By Rie Ishiguro and Leika Kihara

TOKYO, Aug 24 (Reuters) - Japan unveiled a $100 billion
credit line on Wednesday for companies investing overseas,
tapping its foreign reserves for a third time in as many years,
and stepped up monitoring currency positions of financial
institutions in an attempt to curb the yen's strength.

The ministry of finance (MoF) plans to extend dollar loans,
jointly with Japanese banks, to companies looking to invest
abroad and said it hopes to "prompt private sector's conversion
of yen to foreign currencies, to stabilise markets."

Finance Minister Yoshihiko Noda said he hoped the measures
would reverse excessive rises in the yen that hurt Japan's
export-reliant economy, which is just emerging from the
devastation of the March earthquake and tsunami.

But the dollar fell against the yen as market players were
disappointed there was no explicit mention of currency
intervention, and doubted the effectiveness of the new steps in
turning the weak-dollar tide.

"There are limits to what the government can do when such a
big market force is driving up the yen. This facility won't curb
yen rises," said Tomoko Fujii, FX strategist at Bank of America
Merrill Lynch in Tokyo.

In a news conference announcing the measures, Noda repeated
his warning to markets that Tokyo may intervene to weaken the
yen, saying he was watching more carefully than before whether
there is any speculative activity in the market.

"We won't exclude any options and will take decisive action
when necessary," Noda said. "We decided to compile the package
to show our strong determination that we will act if current yen
rises persist, or if the yen rises further."

The Bank of Japan also said in a statement that it will
continue to watch how currency moves will affect the economic
outlook, signalling its readiness to ease monetary policy again
if yen gains threaten the economy's recovery prospects.

This is the third time that Japan tapped into its
foreign reserves to stabilise markets amid global turmoil since
the financial crisis of 2008.

MARKETS DOUBT EFFECT

The credit facility, to be in place for a year, is aimed at
facilitating companies' acquisitions of overseas firms and
energy resources, the MoF said in a statement.

The government will also require major financial
institutions operating in Japan to report on currency positions
held by dealers on a daily basis until the end of September to
strengthen monitoring of markets and ensure their stability.

Asked if the result of the monitoring could lead to any
action against financial institutions, Noda only said it would
depend on the outcome and that the initial goal was to gain more
information about markets.

Market players say the move is an attempt to discourage
investors from building up speculative short-dollar positions,
but will be unsuccessful because it does not apply to the
overseas players who appear to be largely driving up the yen.

"If the Japanese government is prepared to so far as to ban
shortening of the dollar against the yen, the measure would have
a significant effect. However, such a ban on holding FX
positions would be a big step and it would significantly hinder
financial activity in the Tokyo market," said Takuji Okubo,
chief Japan economist at Societe Generale Securities.

Some currency traders even fear that the monitoring step
could diminish liquidity and volatility during Tokyo hours by
scaring away investors from the Tokyo market.

"If we have to report positions until 3:30 p.m., everyone
will refrain from taking any large positions in Tokyo time
altogether and then do whatever they want in London and New York
trading hours," said a trader for a Japanese bank who spoke on
condition of anonymity.

Japanese authorities intervened unilaterally in the currency
market and eased monetary policy on Aug. 4. But the steps have
not stopped investors from seeking the yen as a safe haven
against risk, with the dollar hovering around 76.65 yen
on Wednesday, now far from the record low of 75.94 yen hit last
week.

Markets are bracing for another round of intervention but
doubt if it would be effective in weakening the yen,
particularly with little likelihood Tokyo could persuade its
Group of Seven counterparts to act jointly in the currency
market.

Noda also repeated that the government will work closely
with the BOJ to ease the economy's pain from recent yen rises.

The BOJ will consider easing monetary policy further,
possibly before its next scheduled rate review on Sept. 6-7, if
sharp yen rises push down share prices enough to severely hurt
business sentiment, sources familiar with the central bank's
thinking have said.

(Additional reporting by Kaori Kaneko and Antoni Slodkowski;
Editing by Chris Gallagher and Ramya Venugopal)