* Japan can keep fresh government bond cap in 2011/12 (Adds quotes, background)

TOKYO, Oct 2 (Reuters) – Recent currency market moves aretoo rapid and too speculative and the yen is becoming toostrong, too fast, causing serious damage to Japan’s economy,Japanese Chief Cabinet Secretary Yoshito Sengoku said onSaturday.

Japanese authorities, worried that the yen’s rise wouldderail an export-driven recovery, intervened in the currencymarket on Sept. 15 for the first time in over 6 years after theyen jumped to a 15-year high against the dollar.

The dollar traded at about 83.25 yen in New York on Friday,edging closer to a 15-year low of 82.87 yen hit last month.Traders say a fall below that level may trigger intervention.

“The appropriate level is something basically to be decidedby the market. But it should not be decided by speculativemoves, but reflect the real economy,” Sengoku, the de facto No.2 in Prime Minister Naoto Kan’s cabinet told Reuters in aninterview.

“If the exchange rate is one that settles down gradually,we would not reject that. But I think that the current movesare too speculative and as a result the yen is rapidly becomingtoo strong,” he said.

Sengoku refrained from saying whether Japan would interveneagain, but said authorities could take “appropriate action atthe appropriate time.”

Kan needs to keep Japan’s economy afloat without ballooninga public debt already twice its $5 trillion economy and wantsopposition parties, who control parliament’s upper house, tojoin in talks on an extra budget for fiscal 2010/11 to March31.

Kyodo news agency said on Friday that government and rulingparty were set to compile a 5 trillion yen ($60 billion) extrabudget, but Sengoku said only that it was likely to be morethan 3 trillion.

“The government and ruling party will craft proposals andif possible discuss with the opposition parties but inprinciple, this will not mean the issuance of fresh bonds orfurther debt,” he said.

Sengoku also said that the government could stick to itsself-imposed cap of around 44.3 trillion yen in fresh bondissuance for the next fiscal year from April. Analysts say thegovernment could struggle to hold down fresh debt due to therising social security costs of a fast-ageing population.

Sengoku also said government hoped that the Bank of Japanwould take sufficient steps to prevent the economy fromslipping into recession. The central bank’s policy board isleaning toward easing monetary policy at an Oct. 4-5 meeting,but it is hardly a done deal. (Reporting by Linda Sieg and Yuko Yoshikawa, editing byJonathan Thatcher)

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