By Tetsushi Kajimoto and Stanley White

TOKYO, Aug 16 (Reuters) - Growth in Japan's economy slowed
to a crawl in the second quarter and analysts see more weakness
ahead, adding to policymakers' headaches as they grapple with
deflation and a rise in the yen that threatens an export-reliant
recovery.

The government is considering new stimulus measures
including boosting graduate employment and the corporate sector,
Kyodo News Agency said late on Monday, after data that testified
to slowing growth in Japan's main export destinations such as
the United States and China and a stimulus-driven domestic
recovery that has petered out.

Against a backdrop of concerted efforts to talk down the yen
after it surged to a 15-year high against the dollar last week,
quarterly gross domestic product grew just 0.1 percent for
annualised expansion of 0.4 percent.

That was well below the median market forecast of 2.3
percent and the United States' 2.4 percent annualised growth in
the same quarter.

It followed revised 4.4 percent annualised growth in the
first quarter, when both exports and a stimulus-driven recovery
in consumption contributed to overall growth.

In the April-June quarter the stimulus effects have worn
off, leaving exports as the sole engine of growth and with its
contribution to growth halved to 0.3 percent, the economy just
eked out a third straight quarter of expansion.

Prime Minister Naoto Kan and Bank of Japan Governor Masaaki
Shirakawa are expected to meet later this week o discuss
possible policy responses.

"I think the Bank of Japan and the government need to take
decisive action against currency moves," said Takeshi Minami,
chief economist at Norinchukin Research Institute in Tokyo.

"Solo currency intervention is possible if the yen
approaches 80 to the dollar. If that is accompanied by monetary
easing by the Bank of Japan, it may have a certain effect."

Citing government sources, Kyodo said the growth-boosting
government measures are expected to include stimulating personal
consumption of eco-friendly products, helping new graduates find
jobs and revitalizing small and midsize companies, Kyodo quoted
the sources as saying.

CHINESE LEAP-FROG

The latest output figures put China ahead of Japan as the
world's second-largest economy for the quarter on a nominal
dollar basis, at $1.2883 trillion against $1.3369 trillion, said
Keisuke Tsumura, a parliamentary secretary at the Cabinet
Office.

"(But) since we have different calculations for seasonal
adjustments, it would be correct and fair to compare the figures
for the whole year," Tsumura said.

China's top currency regulator said last month that his
country's economy had already overtaken Japan's.

Japanese government bond futures jumped after the weak data,
with September 10-year futures rising 0.28 point to 142.67,
their highest since June 2003, while benchmark 10-year yields
slipped to a seven-year low of 0.950 percent. The Nikkei stock
index fell nearly 1 percent.

"The economy may enter a lull late this year or early next
year, or even stagnate," said Yoshiki Shinke, senior economist,
Dai-Ichi Life Research Institute.

"Much depends on the performance of overseas economies."

YEN PINCH

Analysts added that the rise in the yen, which climbed to
84.72 per dollar, may begin to pinch export growth in the latter
half of the fiscal year to next March.

Prime Minister Kan has expressed concern about the yen's
strength. "We need to look at this closely, and that includes
the currency problem," he told reporters when asked whether the
GDP data showed the economy needed new stimulus measures.

"I have asked cabinet ministers involved to report to me
about the economic situation."

Late last year, the last time the yen/dollar strengthened
beyond the 85 yen mark, the BOJ called an emergency meeting and
announced a three-month funding scheme, a day before Shirakawa
met with then-Prime Minister Yukio Hatoyama.

The yen has risen steadily against the dollar since early
May, gaining more than 10 percent and closing in on its 1995
record high of 79.75 per dollar, prompting markets to speculate
that Tokyo might take action.

But currency intervention is seen as difficult, whether
jointly or alone, although market players say the risk of solo
action increases the closer the yen gets to 80. Investors see a
monetary policy response from the BOJ as more likely.

Signs of a faltering economy put more pressure on Kan ahead
of his party's leadership vote next month in which he may face a
challenge from powerbroker Ichiro Ozawa or a proxy, either of
whom would be less keen to forge ahead with fiscal reform.

Japan's recovery has been spotty since emerging from its
worst recession since World War Two in mid-2009.

(Additional reporting by Kaori Kaneko and Yoko Nishikawa;
Editing by Edmund Klamann, Tomasz Janowski, John Stonestreet)