By Leika Kihara and Izumi Nakagawa

TOKYO, Sept 16 (Reuters) - Japan's prime minister signalled
on Thursday that authorities would keep intervening to curb yen
strength as sagging manufacturing confidence underscored the
threat the currency poses to the fragile economic recovery.

A Reuters monthly poll that tracks the Bank of Japan tankan
report showed manufacturing confidence dropped in September
from August for the first time in nearly a year as firms
struggled with the yen's rise to a 15-year high against the
dollar.

Responding to concerns about the yen's rise, authorities
intervened in markets on Wednesday for the first time in six
years to knock the currency lower.

Bank of Japan money market data showed the yen-selling may
have totalled up to 1.86 trillion yen ($21.7 billion), which
would be a record for a single day.

Prime Minister Naoto Kan, who fended off a leadership
challenge from a ruling party powerbroker this week, pointed on
Thursday to more yen selling if needed.

"If rapid fluctuations in the yen harm Japanese firms'
appetite for investing at home and push them to shift their
factories overseas, that could further worsen job conditions
and affect (our efforts) to overcome deflation," Kan said.

"I will take decisive steps if needed from now on as well,"
he told a business group.

Some currency traders believe the likelihood of another
round of intervention would increase if the dollar slipped back
below 85 yen. Its now trading at 85.4 yen, having strengthened
from around 83 yen before the intervention.

PRESSURE ON BOJ?

Kan, struggling to unify his party and facing a divided
parliament, wants to be proactive in tackling the yen after
winning the ruling party leadership race on Tuesday.

He is expected to reshuffle his cabinet soon but retain
Yoshihiko Noda as finance minister.

"He (Kan) is trying to send a message of his party's
solidarity. He is showing the strong intention of Japan to take
decisive action through intervention," said Ayako Sera, market
strategist at Sumitomo Trust & Banking.

A panel of junior lawmakers in the ruling Democratic Party
of Japan (DPJ) urged the Bank of Japan to call an extraordinary
meeting to ease policy and so support the government's efforts.

Central bank sources have said the authority has no plan to
call an emergency meeting but is ready to act at its next
scheduled meeting in early October if the economic recovery
remains under threat.

The panel suggested the BOJ increase its buying of Japanese
government bonds, although BOJ Governor Masaaki Shirakawa
reiterated his opposition to the idea.

"We hardly observe the fact that massive expansions in
central bank balance sheets result in an increase in inflation
in advanced economies," Shirakawa said in a conference speech.

Shirakawa told a securities dealers' gathering later on
Thursday that the BOJ would take timely action as needed and
keep providing ample funds to money markets.

In addition, sources familiar with the matter said on
Wednesday the BOJ will not drain the money flowing into the
economy as a result of the selling, indicating it plans to use
the sold yen as a monetary tool to boost liquidity in the
economy.

YEN THREAT TO EXPORTS

The intervention pushed the dollar more than 3 percent
higher on Wednesday, a big move for a currency.

Japan faced some international criticism for its solo
intervention. Since most advanced economies are grappling with
slow growth at home, making exports an economic imperative,
Japan's move heightened concerns countries would launch a round
of competitive devaluations to support their own exports.

U.S. lawmaker Sander Levin, who chairs a congressional
committee examining China's currency policy, blamed Beijing for
Japan's "deeply disturbing" intervention.

But Kan faces domestic pressure for more action on the yen.

"The dollar has recovered to about 85 yen now after the
government and Bank of Japan intervened yesterday, and we want
them to continue taking strong action to reverse the yen's
strength," Toshiyuki Shiga, chairman of the Japan Automobile
Manufacturers Association (JAMA), told a news conference.

"A dollar of 85 or 90 yen is not a level at which job
losses can be prevented in Japan," he added.

Japan's economic recovery from the global crisis has
faltered with export growth slowing down. Signs the U.S.
recovery is also stuttering has added to Tokyo's concerns.

Underlining those concerns, the Reuters Tankan survey,
which has a 95 percent correlation with the BOJ's closely
watched quarterly tankan business sentiment survey, showed the
manufacturers' sentiment index fell 5 points from August to
plus 17, down for the first time since October 2009.

Still, the Reuters index has risen during the
July-September quarter, suggesting the BOJ data due on out on
Sept. 29 will also show a rise.
($1=85.75 Yen)
(Additional reporting by Yoko Nishikawa, Kaori Kaneko,
Tetsushi Kajimoto and Yoko Kubota; Writing by Tetsushi Kajimoto
and Linda Sieg; Editing by Edmund Klamann, Nathan Layne and
Neil Fullick)