*Japan ramping up verbal intervention to halt yen rise
*Traders say yen may keep rising as FX intervention unlikely
*Yen has retreated slightly from 15-year high vs dollar
*Democrat backbenchers say govt should consider intervention (Adds details on lawmakers' proposal, GDP forecast)
By Stanley White and Masayuki Kitano
TOKYO, Aug 13 (Reuters) - Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa may meet as early as next week to discuss the yen's strength and possible responses, although likely options are seen as limited.
Japanese policymakers have been trying to talk the yen down this week as it surged to a 15-year high against the dollar, and the government and the BOJ are now coordinating to set up a meeting between Kan and Shirakawa that will likely take place in the second half of next week, government sources said.
Shirakawa has met Japanese prime ministers before but this meeting is expected to focus on the yen's gains, which Tokyo worries will derail a fragile economic recovery and exacerbate deflation.
But traders said the yen was still likely to gain longer term, because Group of Seven countries are unlikely to agree to joint foreign exchange market intervention to strengthen their currencies as their own economies are not recovering strongly.
"It's really hard to answer the question why other countries have to intervene just for Japan, when other currencies are falling due to a weak economic outlook," said Tsutomu Soma, senior manager of foreign securities at Okasan Securities.
The dollar edged higher on Friday and was around 85.75 yen by late afternoon in Tokyo, more than a yen above Wednesday's 15-year low of 84.72, on the prospect that Japanese officials will increase verbal intervention to try to stem yen gains.
"This is an opportunity to cover some short (dollar) positions, but traders are likely to continue to target a break of 80 yen," Soma said.
VOLLEY OF COMMENTS
A group of junior lawmakers in the ruling Democratic Party called on the government and the BOJ to use currency intervention and quantitative easing to bring the yen toward 110 per dollar, Yoichi Kaneko, a leading member of the group, said on Friday.
The group has made similar proposals in the past, but the government has not reflected its ideas in policy decisions.
Japan policymakers fired off a volley of comments on Thursday to curb yen strength and the central bank checked rates with banks as officials stepped up efforts to prevent the currency from harming the economic recovery.
The economy's growth likely slowed to 0.6 percent in April-June from a 1.2 percent expansion in the previous quarter as export growth moderated and the boost to consumer spending from government incentives faded, a Reuters poll of economists showed. The data is due on Aug. 16.
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, fuelling currency market speculation that Japan might intervene.
Japan's authorities have not intervened to protect exporters from a strong currency since March 2004, when a 15-month yen selling spree came to an end.
Currency market intervention is seen as difficult, whether jointly with other countries or alone, although market players say the chance of solo action increases the closer the yen gets to 80 per dollar and if its rise accelerates to a pace of 2 to 3 yen per day.
The other wild card is the Nikkei share average. Market players say a steep drop in the stock market benchmark would also alarm authorities and could be another catalyst for action.
Other options include policy steps by the central bank, such as expanding a funding operation launched last December to pump more cash into the banking system, which is seen as the most likely option, or buying more government bonds.
Japanese manufacturers' confidence rose to the highest in nearly three years in August due to government stimulus, but companies forecast for the first time in three years that their sentiment will deteriorate as the strong yen threatens exporters' earnings, a Reuters poll showed.
Some BOJ board members believe there is a need to watch the impact of the yen's rise and the stock market decline on the economy, minutes of the bank's July 14-15 meeting showed on Friday.
Some members also said the yen had appreciated in part because investors had no better alternative than to buy yen as safe assets. (Writing by Stanley White, additional reporting by Tetsushi Kajimoto; Editing by Michael Watson)