Prime Minister Yoshihiko Noda said his administration will act against any disorderly gains for the yen and urged policymakers around the world to follow through on pledges to rebalance global demand.
"We have to observe the market closely to see whether there are excessive or disorderly moves" in the currency market, Noda said Wednesday.
The yen's strength is a "serious problem," is out of step with Japan's economic performance and "when necessary, we will take decisive action," he said.
Noda spoke on the eve of a gathering of the Group of Seven in Tokyo, where finance chiefs were expected Thursday afternoon to assess the recovery from the 2009 global recession.
Japan will continue to contribute to market stability as the world's largest creditor nation, he said. Noda also urged the Bank of Japan to take "decisive" action at the right time to end deflation that has eroded wages and growth.
The economy will shrink in the last two quarters of the year, according to forecasts from Morgan Stanley and BNP Paribas, hampered by weakening export demand in China and Europe and strength in the yen that has contributed to record losses in the electronics industry.
The gathering of G-7 finance ministers and central bank governors followed efforts by Europe to address its debt crisis with the establishment of the €500 billion ($648 billion) European Stability Mechanism. Japan has supported Europe through the purchase of rescue-fund bonds and increased contributions to the International Monetary Fund.
"Japan is the largest creditor country in the world, so we have made contributions to the stability of international markets and we want this IMF meeting to confirm that we will continue to contribute," Noda said.