Hayami said conditions were all right for the central bank to end the bank's hyper-loose monetary policy and analysts said a rate hike could come as soon as the BoJ's next policy board meeting on July 17. Such talk had already begun to circulate in the markets earlier on Monday after the release of robust Japanese data on machinery orders, considered a reliable indicator on investment trends.

The yen rallied to 106.60 against the dollar immediately after Hayami's comments, up more than one per cent from Friday's one-month troughs near 108. Euro/yen had declined to around 101.50, down 1.25 per cent from Thursday's three-week peaks just below 103.

"Hayami's comments are strategically timed because we are only one week away from a crucial monetary policy meeting," said Sally Wilkinson, senior economist at Daiwa SBCM Europe.

The yen was initially underpinned after the G7 finance ministers meeting over the weekend, failed to express vocal opposition to an end for the BoJ's ultra-loose policy. Nevertheless, US treasury secretary Lawrence Summers reiterated a call for Japan to use all policies at its disposal to endanger a self-sustaining recovery.

The yen was also supported by Japanese machinery orders which recorded a healthy 4.5 per cent increase in May, breaking a four-month stretch of falls. Year-on-year growth was at a lofty 17.7 per cent, supporting the case for the BoJ to tighten perhaps as early as next week. Still, analysts said while the yen had gained some immediate support from the comments, a rate hike was now priced into the market and there were some concerns that higher rates could damage Japan's economic recovery which could in turn dent yen strength.

-- (Reuters)