* Dollar holds a yen above 1995's 79.75 yen record low
* Japan's finance minister says intervention stance unchanged
* Dollar index slips but euro softens slightly as well
By Charlotte Cooper and Masayuki Kitano
TOKYO, Oct 26 (Reuters) - The dollar held just a yen above its 1995 record low against the Japanese currency on Tuesday, prompting Japanese policy-makers to remind the market that Tokyo might intervene if pushed to stop its currency from rising.
The dollar eased against a basket of currencies but was firmer on the euro after the single currency failed to sustain gains the previous day back towards a recent eight-month high, highlighting the fact that the greenback is finding bouts of support.
The dollar's postwar record low of 79.75 yen set in April 1995 has become a focal point as the greenback has moved steadily lower, hitting a 15-year trough at 80.41 yen on Monday, with players wary that Japan may intervene if it nears 80.00 yen, following Tokyo's first intervention in six years in September.
But tensions among G20 partners over competitive currency devaluations have muddied the waters for Japan, which is worried yen strength is harming its fragile economy but pledged along with its G20 counterparts at the weekend to refrain from competitive devaluations.
Still, the same pledge also said advanced economies would be vigilant against disorderly exchange rate movements, a phrase Finance Minister Yoshihiko Noda was quick to point to on Tuesday while saying Japan would take decisive steps on forex when needed.
"Everyone thinks intervention is a possibility, that it is an option, but it is hard to say at what level that could occur," said a trader for a foreign bank in Tokyo.
The question was whether Japan had sufficient rationale to intervene, given that falls in the dollar against the yen have remained gradual and not been very rapid, he said.
"It could be pretty difficult to conduct intervention with justification," he said.
The dollar dipped as far as 80.66 yen on Tuesday before edging back to stand slightly lower on the day at 80.79. It fell 0.2 percent against a basket of currencies.
The Bank of Japan, which acts on behalf of the Ministry of Finance, intervened on Sept.15 for the first time since 2004 to sell the yen when it rose beyond 83.00 per dollar.
The greenback has fallen broadly since then as the market has priced in more quantitative easing by the Federal Reserve, highlighting the uphill battle Japan would face if it did intervene.
Japanese exporters needing to convert their overseas earnings are said to have sold dollars into even small dollar/yen rallies, keeping the pair under downward pressure and prompting Nissan Motor Co's chief operating officer to say on Tuesday he had a "huge sense of crisis" about the strong yen.
Technically, chartists at JP Morgan said in a note that dollar/yen was in a position for a test if not a break of the 1995 low. "Still, given the short-term oversold set-up, a choppy downside bias remains likely," they said.
The euro eased 0.1 percent to $1.3947 after once again failing to hold above $1.4000 on Monday and keeping intact a familiar range roughly between $1.3700 and $1.4160 this month.
"It's tried a few times and failed. People are quick to lock in profit these days," said Grant Turley, a strategist at ANZ in Sydney.
With the Fed expected to pump more money into the economy as early as next week but with no clear consensus still on how much cash it will inject, analysts expect dollar pairs to stay choppy.
Keeping the market guessing, New York Fed President William Dudley said whether an incremental or big bang approach to asset purchases would work better depended on the economic context.
"The market's getting mixed signals from the Fed but ultimately whatever they do they are going to be doing QE2," said a senior trader at a European bank in Hong Kong.
The market had pared its expectations of massive purchases to a more start-and-see-how-it-goes approach, he said, but in the end QE was likely to continue until unemployment began to fall.
Macro funds had trimmed some of their short dollar positions as they waited to see how the G20 currency debate shaped up, with a question mark after the weekend statement as to whether major currencies such as the euro should adjust upwards as much against the dollar as Asian currencies.
"That's a bit harder to gauge and if dollar/Asia starts moving lower there's still going to be some intervention and there's still going to be some of that recycled into the euro and the Aussie," the senior trader said.
The Australian dollar slipped 0.1 percent to $0.9900, still unable to make a sustained push through parity.
But it was seen supported by demand stemming from corporate merger activities and heightened expectations of a near-term interest rate hike, with markets awaiting consumer inflation on Wednesday to see if the Reserve Bank of Australia will tighten.
Markets are pricing in a 52 percent chance of a 25 basis point rate hike to the 4.5 percent benchmark rate at the Nov. 2 meeting. (Additional reporting by Ian Chua in Sydney; Editing by Michael Watson)