Finance Minister Yoshihiko Noda said the yen’s moves were “somewhat one-sided,” slightly stronger than earlier comments that he was closely watching currency moves, as markets pore over official statements for hints on possible moves by policymakers.

Speculation has intensified over whether authorities may consider intervention or if the Bank of Japan might relax its already ultra-loose monetary policy to curb the yen’s rise.

Policymakers are worried that the yen’s strength could undermine Japanese exports, which have led the economy out of the global downturn, and add to deflationary pressures following 16 straight months of falling consumer prices.

Most currency dealers, however, think official intervention is unlikely before the dollar breaks below 84.82, which would be a 15-year low.

It fell as far as 85.32 yen and was trading at 85.47 at 0750 GMT, down 0.4 percent on the day. The yen has risen more than 8 percent so far this year.

The mood inside the finance ministry is that US officials are unlikely to agree to intervention because the dollar is moving in line with US economic fundamentals.

Japan’s ruling Democratic Party is also preoccupied with a divided parliament following its defeat in an upper house election last month, so any response from the government would be limited at best, analysts say.

Bond market players also said they did not expect the BOJ to unveil any new monetary easing steps at a policy meeting next week, unless the yen accelerates alarmingly.

“The Democrats have been taking such great pains to stabilise the domestic political situation that they are not in a position to put pressure on the Bank of Japan to stem the yen’s rise, at least for now,” said Junya Tanase, chief FX strategist for JPMorgan Chase Bank in Tokyo.

“Still, further monetary easing would more likely be an option than currency intervention, and government pressure could mount on the BOJ if the yen rises sharply in a single day.” The yen’s rise and the slide in 10-year government bond yields largely reflect factors beyond Tokyo’s control, complicating the issue for policymakers.

The dollar index, which measures the currency against a basket of other major units, has dropped to its lowest since April as data points to a faltering US recovery.

The latest fall in bond yields is also driven in part by fears that sputtering US growth would weigh on Japan’s economy.

“A US economic slowdown would hurt emerging markets, which would in turn damage Japanese exports. As such, hopes for an economic recovery at home are being scaled back, also because the yen is appreciating,” said Akitsugu Bandou, senior economist at Okasan Securities.

Benchmark 10-year government bond yields slid to 0.995 percent their lowest since August 2003 and a drop of 41 basis points from a peak in early April.

The yen’s rise also hit the stock market, with the Nikkei average dropping 2.1 percent as exporters’ shares fell. Camera maker Canon Inc lost more than 4 percent.

“I think underlying (currency) moves are somewhat one-sided,” Finance Minister Noda told reporters.

“Excessive and disorderly currency moves would negatively affect stability in the economy and financial markets, and therefore it’s undesirable. In this regard, I am closely watching market moves.”

Japan’s economy grew at an annualized rate of 5.0 percent in the first quarter, the fastest pace in the G7 after Canada, but growth is expected to slow during the rest of the year as the pace of exports moderates and some government subsidies expire.

The downturn and stubbornly weak domestic demand have led to 16 straight months of deflation, which also threatens the recovery by encouraging businesses and consumers to put off spending.

Markets in Japan are rife with speculation that the BOJ may ease monetary policy further when its board meets on Aug. 10 if the yen shoots up further.

Analysts believe that a BOJ decision, under government pressure, to set up a bank funding scheme in December was designed to help cool the yen, suggesting further central bank action could be considered.

But the government has kept relatively quiet in recent weeks, in contrast to last year when it criticized the bank for not doing enough.

“Politics is in a muddle and we don’t know who is going to be prime minister after (the ruling party leadership election on) Sept. 14,” said Norihiro Fujito, a senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

“The chances of a major policy move before then are extremely low.” If the BOJ does ease policy further, analysts expect it to opt for only minor tweaks.

Japanese authorities have not intervened in foreign exchange markets since March 2004, when their 15-month yen selling spree came to an end. During that period, they sold 35 trillion yen ($408 billion) to curb the yen’s strength and support the country’s exporting industries.

Japan would also have a hard time convincing its G7 partners about the need for intervention now, when they are pressing China to let its currency appreciate further.