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Japan intervened in the currency market last week by selling yen for the first time in more than six years as its surge to a 15-year high against the dollar threatened to derail Japan's slowing economy and worsen deflation.

In an interview with the Financial Times published on Wednesday, Kan said currency intervention would be unavoidable if there were a drastic change in the yen exchange rate.

The comments coincided with the dollar's drop below 85 yen to its weakest level since last week's intervention, after the Federal Reserve signaled it was ready to stimulate the U.S. economy more.

Traders said the yen was still below levels that would trigger another intervention, but more yen selling could not be ruled out.

"I don't think markets are bracing for imminent intervention with the dollar still above 84.00 yen. But if the dollar falls further to test 82 yen, markets will focus on whether authorities will step in again to defend that level," said Ayako Sera, market strategist at Sumitomo Trust & Banking.

"Japanese authorities will intervene in the event of sharp market moves, regardless of whether Kan will be away from Japan or not."

Kan, who is in New York this week for a U.N. General Assembly meeting, said there was an agreement among G20 nations that overly rapid currency movements were undesirable, and that he would seek to defend Japan's action.

Bank of Japan Governor Masaaki Shirakawa declared further support for the Japanese economy, saying in a newspaper interview the central bank would provide ample funds to the market.

That would include liquidity supplied through intervention, Shirakawa said, suggesting that the central bank would continue to refrain from draining funds released into the market when the authorities sell yen.

The BOJ also stands ready to ease policy further at its next rate review on October 4-5, although there is a debate within the bank on what exactly it should do next with its policy options limited, sources familiar with the bank's thinking said.

BOJ'S OPTIONS

Those options include increasing government bond purchases, buying private sector assets or expanding a cheap fund-supply scheme targeting growth industries, sources say.

Shirakawa told the Yomiuri newspaper that greater uncertainty about the global economy meant increased risks to Japan's economic recovery, a warning echoed by BOJ board member Ryuzo Miyao.

Miyao, who joined the board in March, told business leaders in western Japan that a possible extended spell of sluggish U.S. economic growth could force the BOJ to alter its forecast of a sustained moderate recovery in Japan's economy.