By Stanley White and Kaori Kaneko
Japan's export growth showed signs of resilience, slowing less than expected in September, finance ministry data showed, but economists warn that persistent yen strength and Europe's sovereign debt woes pose increasing risks to external demand.
The Bank of Japan, which meets on Thursday, will probably cut its economic forecasts because of slowing global growth but keep monetary policy unchanged unless disappointment over Europe's plans to solve its crisis roils markets.
Even if the BOJ keeps policy unchanged this week, Japan's government and central bank may not be able to hold off from taking action much longer as safe-haven flows keep the yen stubbornly high against the U.S. currency.
"The dollar/yen rate fell sharply, to between 75 and 76 yen, in a short time. This is an utterly speculative move and not reflecting the economic fundamentals at all. This is regrettable," Finance Minister Jun Azumi told reporters.
"If this move becomes excessive, we have to take decisive action. I already instructed my staff on Saturday to be prepared to take action."
Azumi added that the strong yen would have a major impact on Japan's export sector, especially the auto industry, and could dent the country's economic recovery from a slump triggered by the March 11 earthquake and tsunami.
Azumi spoke after the dollar hit a record low of 75.78 yen on trading platform EBS on Friday. That surpassed its previous record low of 75.94 yen in August and brought back into focus the possibility of intervention to weaken the Japanese currency.
The dollar rose slightly after Azumi's remark but later ceded ground to trade around 76.25 yen.
Japan's biggest business lobby echoed Azumi's concern about exports and on Monday urged intervention by the authorities even if they have to go it alone.
"I would like to see firm action by Japan, including steps such as intervention on its own," Nippon Keidanren Chairman Hiromasa Yonekura said at a news conference.
Analysts do not rule out intervention, most likely unilateral, if the yen continues to rise.
"Japan may intervene in the currency market if dollar/yen stays below 76 or falls below 75. Unless it intervenes, the yen may continue to rise and verbal warnings alone may not be able to reverse that trend," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
Traders in Tokyo, however, were skeptical whether the latest market action would serve as a trigger for intervention, citing a broad sell-off in the dollar as the main driver and data showing that margin traders have recently built up long dollar/yen positions.
Since September of last year, the government has intervened twice on its own and once jointly with other Group of Seven rich nations to weaken the yen, but the effects of intervention have proved short-lived.
The government needs to be ready to respond if the pace of speculative currency move picks up, Vice Finance Minister Fumihiko Igarashi warned.
Japan's exports rose 2.4 percent in September from a year earlier, boosted by shipments of cars and car parts. That compared with a median forecast for a 1.0 percent increase, and followed a 2.8 percent climb in the year to August.
Imports increased 12.1 percent in September, against a forecast of a 12.6 percent rise.
The trade balance turned to a surplus of 300.4 billion yen ($3.95 billion) following the previous month's deficit. That compared with a median forecast of a 198.8 billion yen surplus.
Exports to Asia, which account for more than half of Japan's total exports, edged up 0.2 percent from a year earlier, with China taking in 2.7 percent more Japanese goods than a year ago, while exports to the United States were up 0.4 percent.
The Japanese economy probably rebounded in the third quarter from the damage caused by the March 11 disaster but is expected to slow to a crawl in the final quarter due to an intensifying euro-zone debt crisis that threatens to drag down the world economy, a Reuters poll shows.
Euro zone leaders are striving to agree on new steps to reduce Greece's debt, strengthen the capital of banks with exposure to troubled euro zone sovereigns and leverage the euro zone's rescue fund to stem contagion to bigger economies.
(Editing by Tomasz Janowski and Neil Fullick)