"I don't think Japan will feel alarmed at the (dollar's) current level of just below 112 yen," said Koji Fukaya, chief analyst at the foreign exchange and treasury division of Bank of Tokyo-Mitsubishi.

Analysts said that with the yen's rise doing little tangible damage to corporate sentiment so far, Japanese authorities have relaxed their intervention policy which saw the Bank of Japan (BoJ) step in aggressively to sell yen in recent months.

Instead, the BoJ may be ready to wait until its US counterpart is sufficiently concerned about the dollar's weakness to mount joint market intervention.

The BoJ was nowhere to be seen on Thursday, even as the yen surged to a lifetime high of 116.85 against the euro and a seven-month high of 111.20 in Tokyo afternoon trade.

Japan's topfinancial diplomat Haruhiko Kuroda repeated the MoF mantra on Thursday that Japan will take appropriate and decisive action as needed on foreign exchange.

But the market was more interested in his reference to a possible de-coupling between the yen and Japanese share prices.

Traders said this reflected the ministry's current aim of leaving it to the market to judge if the yen's level is in line with economic conditions.

Asked about a recent rise in Japan's stock prices, Kuroda, the vice finance minister for international affairs, said: "A rise in stock prices reflects expectations for economic recovery, and that is favourable."

The ministry of finance, which is responsible for Japan's foreign exchange policy, has been trying to persuade currency traders that gains in Tokyo stocks on hopes for an economic recovery should not necessarily be reflected in yen strength.

"There seems a consensus between Japanese and US currency authorities that intervention out of line with a nation's economicfundamentals cannot be effective," said Bank of Tokyo-Mitsubishi's Fukaya.

He added that any action by the MoF would be more a smoothing operation to buy time until market participants realise the yen had been overbought.

Tuesday's comments by BoJ Governor Masaru Hayami also fuelled the view that Japan's intervention policy has become more market-oriented.

Hayami said in a news conference that the key issue regarding the currency markets is what corporations do to deal with currency fluctuations, rather than what actions the authorities should take in response to short-term foreign exchange movements.

But analysts said US-Japan joint intervention to save the beleaguered dollar is still possible if the dollar falls below 110 yen and causes unstability in US asset markets.

"We should be aware that the authorities haven't said that they would leave the yen's rise unchecked," said Daisaku Ueno, senior economist at Nomura Research Institute.