By Stanley White

TOKYO (Reuters) - The Bank of Japan stepped closer to currency intervention on Friday than at any time in the last five years by checking exchange rates with commercial banks as the yen rallied to a 14-year high against the dollar.

Still, market sources said intervention was highly unlikely in the short term and that authorities were instead aiming to temper the sentiment driving the yen higher.

While the central bank made its presence known in the market, Japan's Finance Minister, Hirohisa Fujii, raised the prospect of a Group of Seven joint statement on currencies to cool the yen's rally.

The dollar slumped to a low of 84.82 yen as investors shunned riskier assets after news about Dubai's debt problems, but it pared its losses after Fujii's comments as his rhetoric was sharper than his remarks on Thursday.

G7 countries issued a statement in October 2008 when the yen rallied against other major currencies, so traders and analysts said a joint statement was possible.

But joint intervention was extremely unlikely, they said. Such action might send the wrong signal at a time when the G7 wants to encourage China to let the yuan rise by maintaining flexible currency markets.

Unilateral intervention by Japan was also unlikely because the yen's rise is largely the result of the dollar's broad weakness, and the BOJ would not have enough financial firepower to reverse the dollar's decline.

The mere threat of joint action though was enough to curb the yen's gains against the dollar, traders said.

"I would respond flexibly to a joint statement on currencies," Fujii told reporters after a cabinet meeting.

Fujii said he was also flexible about contacting currency authorities in the United States and Europe, adding that he was very nervous about currency moves and it was possible Japan could respond.

He declined to comment on intervention, saying he was not in a position to use the word due to commitments with other G7 countries on currency flexibility.

Market sources said the government and the Bank of Japan had checked dollar-yen rates with commercial banks, going beyond their usual practice of market contact than at any time since authorities intervened earlier this decade to curb yen strength from harming exports.

That intervention came to a stop in March 2004 after authorities dumped 35 trillion yen over 15 months.

During that period, the finance ministry and the BOJ often checked rates as a prelude to intervention.

"The Bank of Japan may have wanted to make its presence felt," a trader said of Friday's rate checking.

DOLLAR DECLINE