BOJ checks rates, intervention unlikely

"I have not heard of intervention at this point but in the future there will be various options and if necessary I'll talk to ministers involved," National Strategy Minister Naoto Kan told reporters.

The dollar's decline against major currencies has been more pronounced, and traders say its slump against the yen is more a symptom of worries that low U.S. interest rates are fostering economic bubbles and that chances of a Dubai debt default are reigniting financial turmoil.

"I can't see what purpose dollar/yen intervention would serve," said Hideki Amikura, executive director of foreign exchange services at Nomura Trust & Banking Co in Tokyo.

"The real question is whether governments will need to help the banking sector out by providing liquidity."

Japan's Democratic Party-led government, in power for just two months, has criticised the previous administration for catering to the country's exporters by keeping the yen weak.

But this criticism has come back to haunt the new government as the dollar's tumble against the yen threatens export earnings and could push the economy back into recession.

Indeed, the head of the Japan Iron and Steel Federation on Thursday warned the yen will cause big problems for the steel, auto, electronics and shipbuilding industries.

The pressure is mounting on Prime Minister Yukio Hatoyama's administration as public support for his cabinet is slipping and the Democrats face an election for the parliament's upper house next year that will determine whether it can govern without needing the support of two small coalition partners.

The dollar has been falling broadly on expectations that interest rates in the United States will remain low, speculation that Japan won't intervene in currency markets, and a bout of risk aversion all snowballed into a sell-off.

(Additional reporting by Tokyo newsroom; Editing by Neil Fullick)