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"The dollar/yen rate fell sharply, to between 75 and 76 yen, in a short time. This is an utterly speculative move and not reflecting the economic fundamentals at all. This is regrettable," Azumi told reporters.

"If this move becomes excessive, we have to take decisive action. I already instructed my staff on Saturday to be prepared to take action."

He added that the strong yen would have a major impact on Japan's export sector, especially the auto industry, and could dent the country's economic recovery after the March 11 earthquake and tsunami.

He made the remarks after the dollar hit a record low of 75.78 yen on trading platform EBS on Friday. That surpassed its previous record low of 75.941 yen set in August, and brought back into focus the possibility of official intervention to weaken the Japanese currency.

The dollar has rebounded since then and rose slightly after Azumi's remark, standing around 76.40 yen on Monday.

Analysts do not rule out the chance of currency intervention, most likely unilateral, if yen rises continue.

"Japan may intervene in the currency market if dollar/yen stays below 76 or falls below 75. Unless it intervenes, the yen may continue to rise and verbal warnings alone may not be able to reverse that trend," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

(Writing by Leika Kihara; Editing by Edmund Klamann and Chris Gallagher)

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.

A second downgrade -- either from Moody's or Fitch -- would follow Standard & Poor's downgrade in August on concerns about the government's budget deficit and rising debt burden. A second loss of the country's top credit rating would be an additional blow to the sluggish U.S. economy, Merrill said.

"The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan" to cut the deficit, Merrill's North American economist, Ethan Harris, wrote in the report.

"Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes," he added.

The bipartisan congressional committee formed to address the deficit -- known as the "super committee" -- needs to break an impasse between Republicans and Democrats in order to reach a deal to reduce the U.S. deficit by at least $1.2 trillion by November 23.

If a majority of the 12-member committee fails to agree on a plan, $1.2 trillion in automatic spending cuts will be triggered, beginning in 2013.

Those automatic cuts, mostly in discretionary spending, would weigh further on a fragile U.S. economy, Merrill said. In the same report, the bank reduced its 2012 and 2013 growth forecasts for the United States to 1.8 percent and 1.4 percent, respectively.

If there were a downgrade, it was not clear which ratings agency would move first.

Moody's Investors Service, which has a negative outlook on the United States's Aaa rating, said it is looking at several other factors, including the results of presidential elections and the expiration of the Bush-era tax cuts late in 2012, to decide on the rating.

"It's not that we're waiting just for this committee to decide on the rating," Steven Hess, Moody's lead analyst for the United States, told Reuters in an interview last week.

Failure by the committee to come up with an agreement, he said, "would be negative information but it is not decisive in our view about the rating."

To be sure, Hess did not rule out the possibility of an early move on U.S. ratings if the country's economy slips into recession. So far, however, the economic performance "is certainly not super positive but not a disaster either," he said.

Fitch Ratings, on the other hand, still has a stable outlook on its AAA rating on the United States, meaning it is more likely to revise that outlook to negative before actually downgrading the rating.

In its latest report on the United States, Fitch says a "negative rating action," which could be only an outlook revision, could result from a weaker-than-expected economic recovery or by failure by the bipartisan committee to reach agreement on at least $1.2 billion in deficit-reduction measures.

(Editing by Leslie Adler)

While visiting the southern region of Guangxi, Wen took on the issues that have raised worries about the direction of the world's second biggest economy: inflation, weakened demand from rich economies, and the pressure to secure jobs for millions of university students and rural migrants.

"Currently, economic growth is slowing and external demand is falling, and we should make employment even more of a priority in economic and social development, doing our utmost to expand employment," Wen told officials in Guangxi, a poorer region next to export-driven Guangdong province, the official People's Daily reported.

Those efforts would include "ensuring an appropriate rate of economic growth" and supporting labor-intensive industries, small businesses and private firms, he said.

Welfare needs should assume a more important role in setting macro-economic policy because these needs "concern the interests of the public and social harmony and stability," Wen added.

RIGHT BALANCE

Wen's government faces a tricky test in striking the right balance between maintaining growth and containing inflation.

China's economic expansion slowed to 9.1 percent from a year earlier in the third quarter, its weakest pace in more than two years as euro-debt strains and a sluggish U.S. economy took a toll.

In September, consumer inflation dipped to 6.1 percent, retreating from three-year highs, but stubborn food price pressures remain a worry for policymakers.

There is also relentless pressure to find jobs.

China has 242 million rural residents who work off the farm, and 153 million of them are migrants working outside their home towns. They are joined by millions more migrants every year, hunting for work in factories and on building sites.

As well, more than six million college and university graduates entered the workforce this year.

Wen also said another plank of the government's efforts to contain price rises -- containing housing costs -- was at a crucial stage.

Housing prices in China have climbed to record highs, although annual property inflation eased to a low of 3.5 percent in September as Beijing's campaign to cool the market made inroads.

"All levels of government must take effective measures to consolidate the fruits of (housing price) controls," he said. Those efforts should include ensuring the government's goals to expand affordable, state-backed housing are met, Wen said.

As of August, China had built 8.68 million units of homes for rental or sale to poorer families this year, putting it on track to fulfill its full-year goal of 10 million homes.

But echoing a widespread complaint among officials, one Guangxi official told Wen of a shortfall in financing for the affordable homes, according to the media accounts.

The premier did not hint at any backing down from affordable home targets, but indicated that commercial developers might get easier access to land for cheaper projects.

"On the one hand, we must get a grip on affordable housing construction," he said. "On the other hand, we must also increase land provision for ordinary commercial housing."

(Reporting by Chris Buckley; Editing by Yoko Nishikawa)

After nearly 10 hours of talks, finance ministers overcame strong opposition from Spain, Italy and Portugal and agreed on the need to inject around 100 billion euros into European banks to protect them from the threat of a Greek debt default, and the broader risks of financial contagion in the euro zone.

The ministers will submit their thoughts to EU leaders, who meet on Sunday to discuss a "comprehensive" solution to the debt crisis, which needs to contain a second bailout programme for Greece, a scaling up of the euro zone's bailout fund, and the strengthening of European bank balance sheets.

No headline deal is expected from Sunday's meeting, but German Chancellor Angela Merkel said she was hopeful that another euro zone summit scheduled for Wednesday would produce definitive results and France's Nicolas Sarkozy agreed.

"We have to take far-reaching decisions," Merkel told reporters ahead of a pre-summit meeting near Brussels. "I believe that the finance ministers made progress, so that we can achieve our ambitious targets by Wednesday."

Speaking to journalists in Brussels, Sarkozy said: "Progress has been made. Between now and Wednesday a solution must be found, a structural solution, an ambitious solution, a definitive solution." Asked if he was confident that could happen, he replied: "Yes, otherwise I wouldn't be here."

During their meeting on Saturday, EU finance ministers heard from the head of the European Banking Authority, who told them that if EU banks were to raise their core capital ratios to 9 percent, and if the bad government bonds on their books were accounted for at current prices, then between 100 and 110 billion euros ($138.9 and $152.8 billion) was needed to shore up the banking system.

Italy, Spain and Portugal, which face paying a hefty price to strengthen their banks, were reluctant to agree a deal that they see as putting them more in the firing line than France and Germany, who also have large exposure to Greek debt.

But under intense pressure from the other 24 EU states, the outlines of a deal were agreed, officials said. Sources said, however, that the proposal EU leaders receive from finance ministers on Sunday may not mention a recapitalisation figure, leaving that up to the leaders to haggle over.

"We have laid down the foundations for an agreement," said Swedish Finance Minister Anders Borg as he left the meeting, a position seconded by Britain's George Osborne.

If EU leaders are able to reach a deal on bank recapitalisation in the coming days, it would be a significant step forward in efforts to contain a crisis that has raged for nearly two years and threatens the EU and global economy.

But several major areas of disagreement remain and it will require vast amounts of hard negotiation between Sunday and Wednesday to strike a deal that convinces financial markets and Europe's major trading partners that the crisis is in hand.

The biggest sticking point is agreeing on how best to scale up the European Financial Stability Facility, the 440 billion euro emergency fund set up last year and so far used to bail out Ireland and Portugal.

Financial markets are not convinced the EFSF is big enough to handle the threat of deeper bond market turmoil in Spain and Italy, so leaders are examining ways they can raise the EFSF's firepower without increasing their commitments to the fund.

One proposal is to the use it to provide guarantees to buyers of Spanish, Italian and other at-risk euro zone debt in an effort to convince institutions the bonds are safe to buy.

By guaranteeing only a portion of the bonds -- say 20 percent -- the EFSF could reach up to five times further.

However, France and several other member states believe a better approach would be to turn the EFSF into a bank so that it could access European Central Bank funds, potentially providing it with unlimited liquidity.

Germany, the Netherlands, Finland and the ECB are opposed to the idea, which the European Commission also says would probably violate EU treaty rules.

Another significant problem is what to do about Greece, the country whose spiralling debts and efforts to cover up its economic shortcomings first provoked to the crisis.

Greece has already received a 110 billion euro rescue plan from the EU and IMF, but now needs another bailout.

On July 21, a deal was struck in which Greece's private sector bondholders would voluntarily accept a 21 percent reduction in the value of their bonds in an effort to lighten Athens' debt burden. At the same time, the EFSF and IMF agreed to provide a further 109 billion euros of aid.

But that deal has unravelled as Greece's economic situation has deteriorated, with budget deficit targets missed and growth contracting more deeply. Now the private sector may need to take a 50 percent writedown on its bond holdings, and the public sector may need to provide substantially more.

BACK TO GREECE

While Greece is one of the euro zone's smaller economies, finding an acceptable way of rescuing it is proving ever more intractable. The private sector, represented by the Institute of International Finance, is deeply opposed to a renegotiation of the July 21 deal, concerned that a deeper writedown will force some banks into very severe losses.

On Saturday its managing director, Charles Dallara, who has been attending talks in Brussels, said that progress was being made, although it was limited.

"We remain open to explore options on a voluntary approach built on a realistic outlook for the Greek economy and restoration of Greece's market access," he said.

Since French banks are among the largest holders of Greek debt, Paris is reluctant to push the private sector too far, and wants to ensure any deal remains voluntary. At heart, there is concern about France losing its triple-A credit rating if some of its banks end up need recapitalizing by the state.

At the same time, euro zone leaders are applying increasing pressure on Italy and Spain to do much more to get their budget deficits in check and stimulate leaden growth.

With yields on Spanish and Italian bonds being pushed to near record level highs on financial markets, the cost of funding their deficits has risen dramatically, creating liquidity problems that the euro zone can ill afford.

EU leaders want to press Italian Prime Minister Silvio Berlusconi in particular to stick to his commitments on spending cuts and investment measures to spur growth, in the hope of better insulating Italy against market pressure.

In a speech to members of her Christian Democrat party on Saturday, German Chancellor Angela Merkel urged countries like Italy and Spain to reduce their sovereign debt levels.

"Spain has already done a lot but it will probably have to do more to win back the markets' confidence," Merkel said.

"If they don't do anything with their budgets, if they continue to have (debt) equal to 120 percent (of GDP) like Italy, then it won't matter how high the protective wall is because it won't help to win back the markets' confidence."

(Additional reporting by Matthew Falloon, Andreas Rinke, Ilona Wissenbach, Daniel Flynn, Annika Breidthardt and Robin Emmott; Writing by Sebastian Moffett and Luke Baker; Editing by Jon Boyle)