A senior Finance Ministry official said Wednesday that joint intervention by Japan and European countries in the currency markets was possible as the dollar rapidly weakens.
Hiroshi Watanabe, vice finance minister for international affairs, said Japanese officials were ready to "take action" if needed. He added Tokyo was also in close contact with European authorities.
"There has been a lot of discussion about the level of cooperation between Japan and Europe" concerning currencies, Watanabe said. "We are cooperating closely and it is possible for us to take joint action if necessary, but it depends on a lot of factors."
Currency market players have been speculating that authorities may buy dollars to stem the dollar's fall, perhaps even intervening together for extra effect.
The dollar plunged to a 4 1/2 year low of 102.11 yen last week. The euro hit a new high of $1.3334 in New York on Tuesday.
A strong yen hurts Japan because it pushes down the value of the overseas earnings of the nation's giant exporters at a time when recovery is highly dependent on exports. A rising yen also tends to make Japanese products more expensive abroad.
Watanabe's predecessor, however, said earlier Wednesday that the dollar would rebound on its own accord because of the strength of the U.S. economy.
Market fears about the U.S. trade deficit, which is behind the dollar's dive, have little backing in reality, said Zembei Mizoguchi, former vice finance minister for international affairs.