TOKYO (Reuters) - Japan's government voiced its increasing irritation with the yen's steep gains on Tuesday, but the sharpened rhetoric was not enough to stop traders from pushing the yen to new highs against the dollar and euro.
Finance Minister Yoshihiko Noda told reporters at a hastily arranged news conference that he was watching currencies with great interest and recent moves were clearly one-sided -- stronger language than he had used recently.
But markets took his refusal to comment on the chance for intervention as a sign the authorities were not ready yet to back up words with action, and the yen scaled another 15-year high against the dollar and a nine-year high against the euro.
"These are non-comments from Noda," said Paul Robson, currency strategist at RBS Global Banking in London.
"The market will test the Japanese authorities to intervene and unless they come up with something more definitive, dollar/yen is headed toward 80. This will really hurt the Japanese economy since both the U.S. and Asian economies are also slowing down."
Tuesday's sharp yen rise has somewhat increased the previously negligible chances that the Bank of Japan will ease monetary policy before its rate review next month, sources familiar with the matter said.
But action before the BOJ's rate review on September 6-7 remains far from a sure bet because some in the bank feel more evidence of damage from yen gains is needed to justify moving now, they said.
The dollar struck a low of 84.15 yen on the EBS trading system on Tuesday, before inching up to 84.24 yen by 1210 GMT, still 1 percent lower on the day. The euro fell to around 106.25 yen.
Prime Minister Naoto Kan later echoed his minister's concerns in a separate media briefing.
The yen has risen nearly 10 percent against the dollar so far this year, driven by a flurry of weak economic data that has undermined the U.S. currency as well as other global factors which Tokyo has little power to influence.
Japanese authorities have repeatedly tried to talk down the currency, fearing that a strong yen will hurt exports and undermine the already fragile economic recovery.
Noda went a bit further in his verbal salvoes aimed at currency traders, saying he would respond in line with the Group of Seven countries' statement issued last October, which says excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.
The statement also says G7 countries will monitor exchange markets closely and cooperate as appropriate.
The statement does leave room for a G7 member to intervene to maintain stability. Japanese officials have mentioned this G7 statement before to signal their displeasure with yen gains, but so far haven't gone a step further by launching intervention.
Traders are skeptical Tokyo is prepared to take on markets on its own and believe coordinated action with its G7 partners is extremely unlikely. Instead, some form of monetary policy easing to contain yen gains is considered a more probable scenario.
"It's clear that recent currency moves are one-sided. Excessive and disorderly currency moves could have a negative impact on the stability of the economy and the financial system," Noda told reporters.
"I consider currency moves to be very important and am watching currencies with great interest."
But yet another round of verbal intervention failed to stop market players from betting on further yen strength.
"The yen's rise has really picked up speed now, but all we're hearing are really restrained comments," said Hiroichi Nishi, general manager, equity division, at Nikko Cordial Securities.
"What the market wants to see is a more resolute attitude, a more resolute response. But all they're doing is verbal intervention, over and over."
Editing by Tomasz Janowski and Susan Fenton