Japanese yen briefly strengthens, traders alert to intervention risks

Adds trader, and Korean won move

LONDON, July 31 (Reuters) - The yen jumped briefly against the dollar again on Friday, with traders alert to the prospect of intervention just a day after Japanese authorities stepped into markets to prop up their stubbornly weak currency.

Japan conducted yen-buying, dollar-selling intervention in New York trading hours on Thursday, a market source said, its first such foray in three months. The yen's slump to four-decade lows has threatened to worsen living costs hit by the Iran war-driven energy shock.

The dollar on Friday dropped by as much as 0.5% on the day to 158.60 yen, falling from around 160 in a matter of seconds. It then rebounded to trade around 159.5 yen JPY=.

It was not immediately clear what drove the market move or whether Japanese authorities were in the market. Japan's Finance Ministry (MOF), which directs intervention, did not immediately respond to a request for comment.

Friday's sudden move came after the Bank of Japan kept interest rates steady, but warned underlying inflation could exceed its target, signalling further rate hikes.

It was however, smaller than Thursday's 2.4% plunge in the dollar to as low as 157.8 yen after the suspected intervention.

Although Japan's top currency diplomat Atsushi Mimura declined to comment on intervention he hinted at U.S. involvement in the effort to stem the yen's decline, including so-called rate checks by the Federal Reserve.

A source on Thursday said that South Korea's foreign exchange authorities had been selling dollars alongside Japan, in a rare sign of coordinated intervention.

South Korea's won KRW= also firmed slightly around the same time as Friday's move in the yen.

Speaking of Friday's move, one currency trader said no one was sure if it was the MOF in the market or just investors liquidating positions.

(Reporting by London and Asia markets teams; Writing by Alun John; Editing by Nell Mackenzie and Dhara Ranasinghe)

((alun.john@thomsonreuters.com;))