Normally, a sustained rise in the yen would trigger stern warnings from Japanese authorities, if not dollar-buying intervention, to slow the currency's rise and help protect the earnings of big exporters such as Sony and Toyota Motor.

Thursday marked the second anniversary of the last intervention by the Ministry of Finance, which acts via the Bank of Japan, and it is likely to stay on the sidelines for some time, analysts said.

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The world's second-largest economy is in the midst of its longest economic expansion since the heady bubble years of the 1980s, and a decade-long battle with deflation looks to be won, removing one of the key reasons for Japan's last huge forays into the market.

On top of that, with the US trade deficit hitting record highs and China now taking most of the heat for global trade frictions, Japanese officials may be happy to stay in the background.

"It's very hard to imagine Japan returning to the sort of large-scale intervention we saw a couple of years ago, given the much stronger state of the economy today," said Koji Fukaya, chief economist at Bank of Tokyo-Mitsubishi UFJ. "You've got to remember, the last time Japan was intervening heavily, part of the whole rationale was that Japan was terrified that the economy's recovery would falter and deflation would get worse - a worry that has pretty much disappeared now."

Japan hasn't intervened to dampen the yen's rise since a record-breaking 15-month stretch up to March 2004, in which it sold 35 trillion yen (HK$2.3 trillion) - more than the size of the entire Swiss economy.

At the beginning of that period, Japanese stock indexes were languishing near 20-year lows, land prices were extending a decade-long slide, and there were even worries that some of the country's largest banks were on the brink of collapse.

By some measures, the intervention may not have been successful - the yen strengthened to 110 to the dollar from 120 over that period. Since then, the Japanese currency has weakened of its own accord, and Japan's recovery has taken root. The dollar stood at about 117.60 yen (HK$7.75) in late Asian trade Thursday.

Reflecting confidence in its view that deflation is over, the BOJ scrapped its ultra-loose "quantitative easing" policy March 9 in the first step towards possible rate rises later in the year after five years of zero rates. Analysts said all this means that, even if higher interest rates in Japan sparked a yen rally, Japan would find it hard to justify large-scale intervention, which was earlier accepted by its trading partners as an emergency measure.

"With the US trade deficit expanding and the American auto sector in pretty bad shape, I don't think Japan would want to run the risk of upsetting Washington these days," said Toru Umemoto, chief forex strategist in Japan for Barclays Capital.

And many Japanese officials have not likely forgotten the 1980s, when trade frictions with the United States, stirred by a weak yen, hit such a pitch that US congressmen were smashing made-in-Japan televisions on Capitol Hill.

Now, the main focus of such criticism has shifted to China, which intervenes heavily to keep the value of the yuan in line with a reference basket of major currencies, something that US critics say gives Chinese exporters an unfair advantage.

"Certainly, I think to some extent Japan is happy to step back and let China take all the heat," says Peter Morgan, senior economist at HSBC Securities in Tokyo.

Japan's foreign exchange reserves, around US$850 billion (HK$6.6 trillion), are set to be overtaken by those of China in the coming months, with some analysts even predicting China's will hit US$1 trillion by the end of the year.

Japanese officials say there is no change in their standard refrain that currencies should stay in line with economic fundamentals, and movements should not become too volatile. Japan's real effective exchange rate - a measure of the yen's value against a basket of currencies after taking account for differences in inflation - stands near a two-decade low, suggesting excessive yen strength is a distant worry.

Analysts say Japan is highly unlikely to intervene in currency markets unless the dollar plunges beyond 100 yen, which would be a 15 percent fall.

"It can get very tiring in times of intervention, because it's always in the back of your mind that you might be taking on the authorities," said Mitsuru Sahara, a senior forex trader at Bank of Tokyo-Mitsubushi UFJ. "In this business, size matters." REUTERS