By Minami Funakoshi and Tetsushi Kajimoto
TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe on Monday instructed Finance Minister Taro Aso to watch currency markets "ever more closely" and take steps if necessary, in the wake of Britain's historic vote to leave the European Union.
Abe made the comments at an emergency meeting with Aso and Bank of Japan Deputy Governor Hiroshi Nakaso as some analysts speculate the central bank may ease if it calls an unscheduled policy review before its planned July 28-29 gathering.
While Abe ordered the BOJ to ensure ample liquidity in markets, his government is ready to provide the economy fiscal support, with an eye on expanding planned stimulus steps to total more than 10 trillion yen ($98.03 billion), sources told Reuters.
"Risks and uncertainty remain in financial markets," Abe said. "We need to continue to work toward market stability."
The yen <JPY=> briefly soared above the key threshold of 100 to the dollar on Friday as investors hoarded the safe-haven currency after the Brexit vote, unnerving Japanese policymakers worried about the effect a strong yen could have on exports.
Japanese authorities have threatened to intervene if they see yen rises as excessive, though market players doubt Tokyo will step in, given strong opposition from Washington.
"I was instructed by the prime minister to take various, aggressive responses to ensure stability in financial and currency markets," Aso told reporters after the meeting.
FX INTERVENTION, EMERGENCY MEETING
Nakaso, speaking to reporters after the meeting, declined to comment on whether the BOJ would hold an emergency rate review to expand monetary stimulus.
A former BOJ executive, Kazuo Momma, told Reuters on Monday that Japan has the right to intervene in markets to stem sharp yen rises, although he saw no need for the central bank to offer fresh stimulus if post-Brexit vote market turmoil is short-lived.
Some analysts say the BOJ could hold an emergency meeting to expand stimulus further if its tankan business survey on July 1 confirms worsening of the domestic economy and prices.
"There's 30 percent chance of BOJ holding an extra policy meeting," said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
But analysts say it will be difficult for Tokyo to intervene in currency markets to stem the yen's strength.
Japanese authorities argue that any action to stem excessive yen strength would be in line with G7/G20 agreements on currency stability. However, U.S. Treasury Secretary Jack Lew warned against currency intervention earlier this month, describing market moves as orderly at a time when Tokyo raised concerns about excess volatility in exchange rates.
"Unlike Switzerland, Japan as the G7 chair finds it hard to intervene as that would prompt other countries to label Tokyo a currency manipulator," Muguruma said. "Even if it intervened, it would not have a lasting impact on markets."
(Writing by Leika Kihara; Editing by Stephen Coates & Shri Navaratnam)