Factbox-Japan's toolkit to combat sharp yen declines

investing.com:

By Leika Kihara

TOKYO (Reuters) -Japanese authorities are facing renewed pressure to combat the yen's fresh declines driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation.

Here are possible steps the government and the central bank could take to tackle further yen weakness, which gives exports a boost but hurts households and retailers by inflating already rising import costs for fuel and food.

ESCALATE VERBAL INTERVENTION — HIGHLY LIKELY

Japanese authorities began jawboning markets this week, describing recent yen falls as «sharp and one-sided». Top currency diplomat Masato Kanda also said he would not rule out any options, when asked if intervention could become a possibility.

If the pace of yen declines accelerates, authorities may escalate their warnings to promise «decisive action» against speculative moves.

Such remarks, aired prior to Japan's previous yen-buying intervention last year, would signal that Tokyo was edging closer to directly intervening in the currency market.

CONDUCT YEN-BUYING INTERVENTION — LESS LIKELY

Tokyo made rare forays into the currency market to prop up the yen in September and October last year to stem a plunge in the currency that eventually hit a 32-year low of 151.94 to the dollar.

While the yen is still well off that low, many market players see 145 as Tokyo's line-in-the-sand and then 150 which, if breached, could trigger another round of intervention. The dollar stood around 144.63 yen in Asia on July 4.

Authorities have said the speed of yen moves, rather than levels, were key to deciding whether to step into the market. This means the chance of intervention will rise if the