"We will take every possible measure, including providing liquidity, to ensure the stability of financial markets and smooth settlements (of business deals)," a bank spokesman said. Tokyo shares plunged by more than 5 percent in early trade on Monday. Market participants began the session watching for any rise to 80.00 yen versus the dollar, dealers said, which could trigger a Japanese yen-buying intervention to prevent the 1995 post-war high of 79.75 yen to the dollar.

"Markets will be very wary of taking the USD/JPY below those levels for fear of intervention," Bank of New Zealand FX strategist Mike Jones said. On Sunday, Prime Minister Naoto Kan warned that Japan is ready to take firm action against speculative trade, signalling his authorities may intervene in currency markets to bolster the yen if needed. The Japanese unit fell sharply following Friday's quake before being bought heavily on the expectation of future yen demand from firms for the massive rebuilding task ahead for the devastated country.

"It is necessary to show our stance of fighting against speculative moves at any cost," Kan told a meeting of his key economic ministers. In September, the Kan administration carried out the first yen-selling intervention by authorities for six years as the currency approached the historic high. A strong yen makes Japan's growth-driving exports more expensive and erodes companies' overseas profits when repatriated, with many companies considering sending more production overseas as a result. Financial services minister Shozaburo Jimi also warned on Sunday that the government would strengthen its supervision of the market against illegal trading in connection with possible confusion related to the disaster.