Japan says won't rule out more FX action

TOKYO (Reuters) - Japan followed up its record yen-selling intervention last year with covert operations and the finance minister said it is ready to step in again to counter speculative moves, repeating his strong warning to markets against pushing up the yen too much.

The yen crept up near its record high against the dollar hit last October, when Japan last intervened, raising concern among policymakers that renewed yen gains may derail Japan's fragile economic recovery from the damage wrought by last year's earthquake and tsunami.

Finance Minister Jun Azumi said on Tuesday Japan will not rule out any steps to battle speculative moves, repeating his verbal warning of action on hope it will at least keep traders wary of testing the yen's upside for now.

"If speculative moves become evident and market moves deviate from economic fundamentals, and speculators distort markets in their self interest, I'll take any steps if necessary in order to protect Japan's national interest," Azumi said.

"As I said back then (when Japan last intervened), I would not rule out any measures," he told reporters.

Data released by the finance ministry the same day confirmed earlier estimates that Tokyo spent roughly 1 trillion yen ($13 billion) in early November on undeclared forays into the currency market.

The covert action was conducted for four days after the hefty 8 trillion yen unilateral intervention on October 31, to make sure its impact would not fade quickly.

The data also showed Tokyo only bought dollars, not euros.

"Azumi underlined the fact that the ministry's stance remains unchanged on intervention, which is that it will act when necessary despite criticism from Europe and the United States of Japan's past solo intervention," said Masafumi Yamamoto, chief currency strategist at Barclays Bank in Tokyo and a former central bank official.

"If the yen's ascent towards these levels become too rapid, that would prompt authorities to intervene as companies cannot keep up with rapid currency moves," he said.

BOJ ALSO UNDER PRESSURE

Many market players believe Japanese may intervene again should the dollar fall well below the record low of 75.31 yen, as exporters struggle with a combination of a slowing global economy and currency strength.

The U.S. currency traded at around 76.60 yen on Tuesday.

Japanese electronics makers have reported huge losses with Panasonic (6752.T) forecasting loss of $10 billion in the financial year to March.

But some analysts think Tokyo is more wary of selling the yen heavily after the U.S. Treasury in December chided Japan for its unilateral interventions.

"It's uncertain whether Tokyo will intervene again given criticism from the United States," said Kengo Suzuki, currency strategist at Mizuho Securities.

The yen's renewed strength has also heightened pressure on the Bank of Japan to ease monetary policy further, although the central bank is unwilling to loosen credit immediately.

BOJ Governor Masaaki Shirakawa told parliament the central bank will continue to do its utmost to pull Japan out of deflation, describing the economy as in a severe state.

But he added that the central bank was already supplying ample funds. The BOJ is expected to stand pat on monetary policy at its next rate review on February 13-14 unless Europe's sovereign debt crisis triggers a severe market turmoil or the yen hits new records.

In intervening on October 31, Japanese authorities said they needed to act against speculative market moves and that they would continue to act until they were satisfied.

The dollar has stayed above the record low since then but crept near that level last month after the U.S. Federal Reserve pledged to keep interest rates low until late 2014. ($1 = 76.6000 Japanese yen)

(Additional reporting by Hideyuki Sano and Leika Kihara, writing by Leika Kihara; Editing by Joseph Radford and Tomasz Janowski)