Japan will take appropriate steps against excessive moves in the yen "without ruling out any options", Finance Minister Shunichi Suzuki said on Wednesday, keeping markets on alert over the chance of yen-buying intervention.
Suzuki told reporters he would not comment on whether Tokyo intervened in the exchange rate market overnight to prop up the yen.
"Currency rates ought to move stably driven by markets, reflecting fundamentals. Sharp moves are undesirable," Suzuki told reporters.
"The government is watching market developments very carefully. We're ready to take necessary action against excess volatility, without ruling out any options," he added.
After sliding below the psychologically important 150 per dollar mark, the yen strengthened sharply overnight on Tuesday, leading some market participants to believe Tokyo had intervened to support the currency. The dollar stood at 149.17 yen in Asia trading on Wednesday.
Japan's top currency diplomat Masato Kanda told reporters early on Wednesday that authorities were looking at various factors, including implied volatility, in determining whether yen moves were excessive.
"If currencies move too much on a single day or, say, a week, that's judged as excess volatility," Kanda said.
"Even if that's not the case, if we see one-sided moves accumulate into very big moves in a certain period of time, that's also excess volatility," Kanda added. He declined to comment on whether the overnight yen moves were excessive.
In a sign of the government's growing alarm over the yen's weakness, Kanda said he met Prime Minister Fumio Kishida later on Wednesday to "discuss the economy in general."
While a weak yen gives Japanese exports a boost, it has been a headache for both policymakers and households alike, by inflating the cost of raw material imports.
Kanda declined to say whether he discussed the weak yen with the premier, but told reporters after the meeting that any intervention would target volatility rather than yen levels.
He added that Japan was acting in accordance with an agreement with its G7 and G20 partners, which includes a commitment to the stance that excessive exchange rate moves are undesirable.
Japanese authorities are facing renewed pressure to combat a sustained depreciation of the yen, as investors confront the prospect of higher-for-longer U.S. interest rates while the Bank of Japan remains wedded to its super-low interest rate policy.
Tokyo last intervened to buy yen in September and October last year, when the Japanese currency eventually slumped to a 32-year low of 151.94 per dollar.
Kishida's administration is planning to compile a supplementary budget for fresh measures to cushion the blow from rising inflation, including subsidies for electricity bills.
Any effort to tame the yen's fall would mesh with the government's focus on keeping inflationary pressure in check, analysts say.
"It's uncertain whether Tuesday's volatility was due to intervention. But judging from the government's policy and from the tools left for Japan, the finance ministry is likely keen to step in," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
"But when yen-selling pressure persists, the chance of intervention reversing the dollar/yen's trend isn't high."