Japan Mulls Action to Clip Wings of Soaring Yen

The Japanese yen on Wednesday eased down a bit from the 15-year and nine-year highs it set against the dollar and the euro respectively on Tuesday. But the market is watching for possible intervention from Tokyo to curb the currency's rise, which threatens Japan's fragile economic recovery.

The U.S. dollar rose to 84.32 yen Wednesday from its 15-year low of 83.58 yen Tuesday, and the euro recovered to 106.62 yen from a low of 105.44 yen on Tuesday, according to Reuters.

Japan's high currency values are causing pain in its key export sector -- one of the bright spots in Japan's economy. On Wednesday, finance ministry data showed annual growth in the country's exports slowed less than expected in July. And signs the global economic recovery is faltering may also continue to affect export growth.

So far, Finance Minister Yoshihiko Noda (pictured) has tried mostly verbal interventions, but on Wednesday, ahead of a meeting with Prime Minister Naoto Kan to discuss the economy, speculation arose that the Bank of Japan may have to undertake a solo intervention, something that hasn't happened since 2004.

However, after Noda's meeting with Kan and Chief Cabinet Secretary Yoshito Sengoku, he told reporters that he hadn't discussed specific yen-targeted measures during the meeting, which briefly sent the yen back up. The currency later eased off its intraday high. However, Japan's Nikkei 225 average hit a 16-month closing low on Wednesday.

Some currency watchers doubt the Bank of Japan would intervene in the currency market, as unilateral moves by Japan are unlikely to have much effect in curbing the yen's gains. Others speculate that authorities would rather try to cool off the yen's rally with some form of monetary easing, such as increasing the size of a short-term fund supply program put in place in December, or extending its duration.