Bank of Japan Gov. Masaaki Shirakawa also signaled that the central bank's ultra-easy monetary policy aims to keep the yen in check by pushing down longer-term interest rates. 

"Current yen rises are a result of the yen being bought as a relatively safe asset with global economic uncertainty very high due to Europe's sovereign debt crisis," he told Parliament. 

"With short-term interest rates already zero, the BoJ aims to influence longer-term interest rates and risk premium. By doing so, it aims for a 'positive' effect on currency rates." 

Shirakawa's comments show that sharp rises in the yen have been and will remain the key trigger for additional monetary stimulus as slowing global growth already clouds the outlook for the export-dependent economy. 

Japan intervened in the currency market and the BoJ eased policy via an increase in asset purchases in August and October, in response to yen rallies. 

The dollar has bounced back and hit a one-month high of 78.29 yen on Tuesday, off its record low of 75.31 yen hit last month. But many market players expect the yen to continue drawing steady demand as a safe-haven currency on escalating market tension over Europe's debt crisis. 

"When the dollar was moving just above 75 yen, we intervened on my judgment. The dollar today is hovering just above 78 yen and there are various reasons for this," Azumi told the same parliamentary session. 

"I want to make efforts to attain little more appropriate currency levels," he said. 
 
Japan's economy rebounded from a recession triggered by the March 11 earthquake and tsunami, but is expected to slow sharply this quarter as the initial spurt driven by companies restoring supply chains and production facilities tails off. 

Private consumption appeared to be holding up for now with government data on Tuesday showing retail sales rose 1.9 percent in the year to October. But the jobless rate rose to 4.5 percent in October from 4.1 percent in September, as companies are reluctant to hire because of the murky economic outlook. 

With an expected boost from a $155 billion reconstruction budget passed this month still some months away, policymakers may feel pressure to act again. 

The BoJ, due to hold this year's last scheduled policy review on Dec. 20-21, has signaled its readiness to ease policy again if its scenario of a moderate recovery comes under threat. 

Shirakawa stressed that the central bank will do its utmost to beat deflation and support the economy, but warned that the effect of its easy policy was not broadening enough to spur spending by households and companies. 

Azumi noted that the central bank has eased monetary policy considerably in the past decade and agreed with Shirakawa that fundamental efforts were needed to pull Japan out of the doldrums. 

"We have to be creative and do something about the economy, and that includes steps to deal with interest rates and currencies," Azumi said. 

"In my view, we need to make structural reforms to beat deflation and short-term fixes won't be enough." 

Policymakers in Tokyo fear that the yen's strength and concerns about power supplies as Japan reduces its reliance on nuclear energy will continue to drive its manufacturers abroad.

Shirakawa has repeatedly said Japan needs to bolster the economy's potential growth by improving productivity and nurturing new industries that can benefit from its ageing population.  

Nikkei economic daily reported that the Trade Ministry has prepared a policy plan that aims to create 3.9 million jobs by 2020 and boost domestic consumption through deregulation and tax breaks in sectors such as health care, energy and agriculture. The blueprint will be a pillar of a government strategy to revitalize the economy, due by mid-2012, the paper said.