LEAD: Kan says Japan to take 'decisive' currency market action when necessary+

TOKYO, Aug. 27 Kyodo -
(EDS: UPDATING WITH DETAILS, KAN QUOTES)
Prime Minister Naoto Kan said Friday that Japan will take ''decisive action''
when necessary against volatile foreign exchange rates and he will hold talks
with Bank of Japan Governor Masaaki Shirakawa possibly next week.
The statement, the strongest by Kan aimed at stemming the yen's appreciation
against a range of major currencies since he assumed office in June, was widely
interpreted as hinting at the possibility of market intervention, which Japan
has not conducted since March 2004.
Kan told reporters in Tokyo he is gravely concerned that ''excessive
volatility in the foreign exchange market is having a negative impact on
economic and financial stability.''
After visiting factories and discussing current economic conditions with
owners of small firms, Kan expressed hope that the central bank will take
flexible and agile policy measures to address the strengthening of the yen,
which is increasingly damaging Japan's export-reliant economy.
Kan said he will hold talks with Shirakawa at the premier's office after the
governor returns from the United States on Monday.
The BOJ is considering additional monetary easing in an attempt to weaken the
yen, according to sources familiar with policy formulation at the central bank.
Earlier this week, the yen rose to a 15-year high against the U.S. dollar and a
nine-year peak against the euro, adding to concern about the pace of economic
recovery, ahead of Kan's attempt to secure reelection as leader of the
Democratic Party of Japan in the ruling party's presidential election on Sept.
14.
Kan said the government will decide on the outline of new economic measures on
Tuesday, a day before the commencement of campaigning for the DPJ's
presidential election in which he will battle with Ichiro Ozawa, a longtime
political kingpin who has been critical of the premier's handling of the
fragile recovery.
The envisioned measures will especially aim to address downside risks resulting
from the yen's surge and slowing overseas economies, he said.
Kan said the government is considering frontloading some of the programs under
its new growth strategy, mapped out in June, to boost domestic demand and
create new jobs.
The government is expected to finance the measures using a reserve fund of
around 900 billion yen in the fiscal 2010 budget and an 800 billion yen surplus
from the fiscal 2009 budget.
Also on Friday, Finance Minister Yoshihiko Noda said the government will
continue to work ''more closely'' with the central bank to prevent the yen from
rising further.
Noda said the government will take ''necessary action'' to cope with the rising
yen, noting that the currency's gains are having ''various impacts'' on the
Japanese economy and the situation is ''serious.''
An industry ministry survey showed Friday that 40 percent of manufacturers plan
to transfer production abroad if the yen hovers at the 85 level to the dollar.
In Tokyo on Friday, the dollar traded most frequently at 84.35 yen.
==Kyodo
2010-08-27 21:08:57