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By Tetsushi Kajimoto
TOKYO, Dec 18 (Reuters) - Japan warned currency markets on Thursday of possible intervention to stem the yen's rise after it hit a 13-year high against the dollar, adding to pressure on the Bank of Japan to cut interest rates to protect an export-dependent economy already in recession.
Market players said currency authorities were still only trying to talk down the yen for now, but a further jump in the Japanese currency and any subsequent fall in Tokyo shares could prompt them to act.
The dollar sank near 87 yen on Wednesday in the wake of the Federal Reserve's hefty interest rate cut, which had led more analysts to forecast that the BOJ will cut rates on Friday.
"We have conducted currency intervention in the past, and we'll take appropriate measures, which includes that (option)," Japan's top government spokesman Takeo Kawamura told a news conference.
"As U.S. interest rates approach zero, the dollar's weakness is continuing, and it's solely the dollar that is weakening... We must closely watch it given its impact on the real economy," the chief cabinet secretary added.
Tokyo has stayed out of the market since a yen-selling spree totalling 35 trillion yen ($398.9 billion) in 2003 and the first quarter of 2004, when the government waged a campaign to prevent a rapid yen rise from derailing a then-fragile economic recovery.
Naoyuki Shinohara, the Ministry of Finance's currency pointman, also voiced a slightly tougher line than usual on Thursday, telling reporters that the ministry would take proper steps as needed in the currency markets.
The ministry's standard line has been that it is watching the currency markets carefully.
"The tone is getting stronger, and the chance of intervention would rise if the dollar falls sharply below 87 yen overnight," said Masafumi Yamamoto, head of foreign exchange strategy in Japan for the Royal Bank of Scotland.
The MOF holds jurisdiction over currency policy.
Japan, like the United States, is already in recession, with major companies such as carmakers Toyota and Honda slashing output as customers around the world close their wallets.
Reflecting the gloomy outlook, the government is expected to cut its assessment of the economy in December for the third month running to warn of a worsening business climate, the Nikkei newspaper reported.
As troubles deepen, ruling party lawmakers on Thursday agreed to put forward a bill in next year's parliament that would enable a government body to resume buying shares from banks -- a measure adopted amid a Japanese banking crisis in the early 2000s.
They seek to allow the Banks' Shareholdings Purchase Corp, which the government set up in 2002 when Japanese banks were burdened with bad loans to companies, to buy up to 20 trillion yen of shares. That would be much larger than a total of about 1.6 trillion yen worth of shares it bought from 2002 to 2006.
EYES ON BOJ
The yen has risen more than 20 percent against the dollar this year due to risk aversion among investors who have unwound carry trade, whereby they had borrowed low-yielding currencies such as Japanese yen to invest in higher-yielding assets abroad, amid a deepening U.S. slowdown and a global credit crisis.
The dollar traded around 88 yen on Thursday, still within sight of Wednesday's 13-year low of 87.13 yen.
The Fed's dramatic rate cut has raised the pressure on a reluctant BOJ to follow suit at its two-day policy review ending on Friday. U.S. interest rates are now below Japanese rates for the first time since February 1993.
Two-thirds of economists expect the BOJ to cut rates to 0.10 percent from the current policy target of 0.30 percent, a Reuters poll showed, although central bank officials have been cautious about cutting Japan's already low rates.
Japanese government officials have called on the BOJ to take more action to help the economy and ease corporate funding strains, and the finance minister kept up the pressure. (Additional reporting by Leika Kihara, Yuzo Saeki, Hideyuki Sano and Chisa Fujioka; Editing by Hugh Lawson)