(Adds comment from top financial diplomat, BOJ's Shirakawa)
By Tetsushi Kajimoto
TOKYO, Jan 22 (Reuters) - Japan's finance minister tried to talk down the soaring yen on Thursday by raising the prospect of intervention after it hit a 13-year high against the dollar, but declined to say if Tokyo was ready to act.
Finance Minister Shoichi Nakagawa was among a string of Japanese officials to signal concern over the yen rally. None made a more specific reference to intervention and currency markets largely shrugged them off.
"Rapid moves are not good, so I am watching the moves carefully," Nakagawa told Reuters.
Asked about the possibility of Tokyo stepping into the currency market, he said: "I should not comment on it. But we should always be thinking about doing what may be necessary."
Japan has not intervened in currency markets since 2004, but it repeatedly tried to talk down the currency as it rallied nearly 20 percent against the dollar last year, driven in part by a flight of Japanese capital from risky foreign assets.
The yen rally has hammered exports and pushed the world's second-largest economy deeper into recession. Exports plunged a record 35 percent in December from a year earlier.
The currency has gained a further 2 percent this year.
"The yen's rise has a major impact on Japanese exports," Bank of Japan governor Masaaki Shirakawa told a news conference.
"It's one of the factors behind a worsening of the economy," he said after the BOJ forecast that Japan would remain mired in recession for two years.
The dollar traded at 88.93 yen on Thursday, rebounding from Wednesday's low of 87.10 yen, its strongest since July 1995.
The euro dropped 0.5 percent to 116.06 yen, falling towards a near-seven-year trough of 112.08 yen.
"It's not a sharp enough move to justify intervention," said Masamichi Adachi, a senior economist at JPMorgan.
"Other countries would bear the brunt if Japan tries to weaken the yen. When most economies around the world are performing badly, it's hard for Japan to convince them that currency intervention is necessary."
Japanese authorities have repeatedly reminded markets of the risk of intervention, especially after the dollar sank below 90 yen last year.
The Group of Seven rich nations issued a statement in October signalling concern about yen volatility, but France said other G7 states had no plans to support any Tokyo intervention.
That statement was issued at the height of market turmoil triggered by the global financial crisis and the collapse of U.S. banks.
"A consensus has formed in recent years among G7 countries to support a flexible exchange rate regime, and that currency policy is an international matter, unlike monetary policy, which is left to individual countries," said Tohru Sasaki, chief forex strategist at JPMorgan in Tokyo.
"That would make it difficult for Japan to intervene on its own," he said.
Traders said U.S. Treasury Secretary-designate Timothy Geithner also appeared to play down the risk of intervention when he said major U.S. trading partners should operate flexible exchange rate regimes.
"Japanese authorities are likely to refrain from intervening near term, but they could decide to step in if the dollar threatens to fall below 85 yen and leave the domestic equity market in turmoil," said Tomoko Fujii, head of economics and strategy at Bank of America in Tokyo.
Intervention talk briefly gathered momentum again on Wednesday as currency volatility appeared to move up the G7 agenda. A source told Reuters the G7 would discuss the crumbling British pound at a meeting of finance ministers in February. (Additional reporting by Reiji Murai; Writing by Jan Dahinten & Kazunori Takada; Editing by Michael Watson)