UPDATE 1-Japan's Nakagawa watching forex market with alarm

Mon Dec 29, 2008 2:01am GMT

(Adds details, background)

TOKYO, Dec 29 (Reuters) - Japanese Finance Minister Shoichi Nakagawa said he was watching volatility in the foreign exchange market with alarm, the Financial Times reported on Monday.

The yen has surged more than 18 percent against the U.S. dollar this year, hitting Japanese exporters and triggering speculation the government may intervene to halt the currency's rally.

"The fact is that every day I am looking at the market developments with a sense of alarm and urgency," the paper quoted Nakagawa as saying in an interview in a reference to yen volatility.

Government data up to the end of November has shown that Japanese monetary authorities have not intervened in currency markets since March 2004.

But Japanese officials have recently expressed concern over the impact of the rise in the yen, which hit a 13-year high of 87.13 yen to the dollar in mid-December. The dollar was trading near 90.60 yen on Monday.

Nakagawa dismissed suggestions that Japan will soon need to draw up another fiscal stimulus package, saying extra spending plans finalised this month must be implemented first, the Financial Times said.

"There is no way that we should worry about what we should eat for dinner when we have not had breakfast yet. The good thing to do is to prepare and eat breakfast first," the paper quoted Nakagawa as saying. Nakagawa, however, stressed that stimulus was a much higher priority than addressing Japan's huge debt burden, the FT said.

Japan's outstanding public debt is expected to total about 780 trillion yen ($8.6 trillion) by the end of next March, or roughly 150 percent of the nation's gross domestic product, the highest among major industrialised nations.

"In order to make our public finances more sound, the top priority should be placed on the recovery of the economy," Nakagawa was quoted as saying.

Earlier this month, Japan's cabinet approved an extra budget worth 4.79 trillion yen to fund economic measures to prevent the world's No.2 economy from sliding deeper into recession amid the global financial crisis.

The government plans to submit the extra budget -- its second for the fiscal year to next March -- to parliament on Jan. 5, but it is unclear when it will pass a divided parliament. (Reporting by Masayuki Kitano; Editing by Edwina Gibbs)