* PM Kan wants BOJ help in supporting economy
* Noda: Will aim for maximum effect if Tokyo intervenes
* Yen holds steady on intervention jitters
* BOJ Shirakawa signals readiness to ease this week
By Stanley White and Leika Kihara
TOKYO, Aug 3 Japan kept markets on guard for
currency intervention and more monetary easing on Wednesday,
with the finance minister vowing to stem the yen's rise and the
prime minister calling for central bank action to protect the
The yen held broadly steady against the dollar as recent
repeated jawboning by Japanese authorities kept markets wary of
intervention, while a deal to raise the U.S debt limit eased
pressure on the U.S. currency.
While verbal intervention reached fever pitch, Prime
Minister Naoto Kan called for the Bank of Japan's support a day
before its two-day rate review, a sign that monetary loosening
could be on the cards even if Tokyo chooses to hold off with
selling yen just yet.
"Japan's economy is in the process of recovering from
disaster, so we must closely watch currency moves. We want the
BOJ to continue to support the economy," Kan told a regular
meeting of cabinet ministers to discuss risks to the economy,
which the central bank governor attended.
Japanese officials fear that the currency's near 5 percent
surge in the past month will harm the economy, which skidded
into its second recession in three years following the March 11
earthquake and tsunami.
BOJ Governor Masaaki Shirakawa signalled the central bank's
readiness to ease policy this week, saying the board will
scrutinise the negative impact that recent yen gains could have
on the economy.
Lingering worries that the United States faces a ratings
downgrade and that Europe's debt crisis will spread further
could push the yen higher again, forcing Japan to sell its
currency for the third time in about a year.
"I don't think currency markets are reflecting economic
fundamentals at all," Finance Minister Yoshihiko Noda told
lawmakers on Wednesday, threatening possible intervention.
He declined to comment on whether Tokyo would intervene,
including the timing of any such move, but warned that if Japan
were to step in it would aim for maximum effect.
Swiss policymakers on Wednesday cut the target interest rate
to stem gains in their rapidly rising currency , which
like the yen is also considered a haven in times of financial
stress, and warned they would take further steps if needed.
Kan's rare request for BOJ action likely means the central
bank will ease policy on Friday even if it precedes any currency
intervention by the finance ministry, analysts said.
The fall in Japan's Nikkei average for a second day on
Wednesday also heightened the chance of monetary easing as it
could hurt business sentiment, which the BOJ focuses on in
determining whether to ease.
The yen hovered around 77.16 yen to the dollar, after
it soared on Monday within a hair's breadth of March's record
high of 76.25 yen. Japanese government bonds jumped partly on
expectations of monetary easing this week.
If the BOJ were to ease, it will likely top up its 10
trillion yen ($130 billion) asset buying scheme, under which it
buys government bonds and private debt, by 5 trillion yen. Most
of the increase will be in JGBs and corporate bonds given the
relatively big size of these markets in Japan.
EYES ON U.S.
Moody's Investors Service said it had confirmed the United
States' top AAA rating but assigned it a negative outlook after
lawmakers passed a deal to raise the U.S. borrowing limit and
reduce the deficit.
Despite the debt agreement, the dollar was unable to make
much headway, weighed down by worries about the health of the
U.S. economy following a batch of dour data.
Markets also await possible action by ratings agency
Standard & Poor's, which has yet to give its opinion of the debt
deal hammered out in Washington that many predict will include a
cut in its top rating for the world's biggest economy.
Japan has been priming the markets for currency intervention
since the yen tested its record high, signalling it may try to
tame the currency with a combination of yen-selling and monetary
Japan last intervened in concert with the Group of Seven in
March when expectations of fund repatriation after the
earthquake pushed the yen to a record high.
This time, most market players believe Japan would have to
go it alone since the yen's gains are more about dollar weakness
than anything else. Tokyo last acted solo in September 2010,
when it sold 2.1 trillion yen.
($1 = 77.145 Japanese Yen)
(Additional reporting by Rie Ishiguro, Editing by Tomasz