By Yoko Nishikawa
TOKYO, Jan 23 (Reuters) - A rising yen will damage Japan's economy and intervention might be needed, but caution is needed as buying dollars will increase holdings of U.S. Treasuries, said the main opposition party's finance spokesman, Masaharu Nakagawa.
Nakagawa's Democratic Party has a good chance of deposing Japan's long-ruling Liberal Democratic Party (LDP) in an election this year, bringing an end to an almost unbroken run of LDP-led government going back more than half a century.
"The yen rise, if left untouched, will further damage already severe economic conditions in Japan," Nakagawa told Reuters in an interview on Friday.
"If moves are very rapid, we need to intervene in the currency market to slow down the pace."
The dollar hit a 13-½ year low of 87.10 yen on Wednesday, prompting speculation Japanese authorities may intervene to try to cap its rise -- although Japanese government officials have been mum on the prospect.
The dollar was trading near 88.85 yen on Friday.
While worried about the yen's strength, Nakagawa was cautious about buying dollars as that boost Japan's holding of U.S. Treasuries, a potential risk if the dollar kept sliding.
"There are a lot of risks to holding U.S. Treasuries and dollar assets more than we do now," he said. "So we need to study ways other than direct intervention in the market to stop the yen's rise."
Japanese authorities have not intervened in the foreign exchange market since March 2004, when they completed a 15-month-long, 35 trillion yen ($393.5 billion) yen selling spree aimed at keeping a rapid rise from derailing a fragile economic recovery.
The currency breakdown of Japan's foreign reserves is not disclosed, but historical data on the nation's currency intervention, which has mostly taken in the form of dollar buying, suggests the most of Japan's reserves are in dollars. ($1=88.94 Yen) (Editing by Rodney Joyce)