General view of the business district in Tokyo Thomson Reuters TOKYO (Reuters) - Nearly half of Japanese firms think the government should start defending the yen at this month's dollar high of 110, a Reuters survey shows, underscoring the threat that rising fuel and other import costs pose to a fragile economy.

Over the past two years, Prime Minister Shinzo Abe has sought to boost the economy and cure deflation with bold monetary stimulus that has successfully wrought a much weaker yen.

But the yen's descent against the greenback to a six-year low of 110.09 on Oct. 1 - a rapid 8 percent decline over three months - has prompted a chorus of complaints from companies that Abe's medicine could become poison.

While the yen has since regained some ground to around 106 on expectations that the Federal Reserve may put off raising U.S. interest rates, the potential for further weakness is a major concern for many firms, the Reuters Corporate Survey showed.

"If the yen is guided too weak, raw material costs jump and firms that can't pass on those costs become exhausted and find it hard to survive," wrote an executive at a paper company, one of the industries most affected by yen weakness.

The survey, conducted from Sept. 30 to Oct. 14, found 45 percent of companies want the government to start talking up the yen or defend it with market intervention at around 110 to the dollar. That suggests that this level could become a key point at which corporate pressure on the government to do something about yen weakness intensifies.

But it also found that some 23 percent of firms want action at around 115 yen and 20 percent prefer around 120 yen, with the remainder happy to wait for weaker levels. That suggests that authorities in export-reliant Japan will also be cautious in weighing the pros and cons of interfering in the market.

The survey polled executives at 486 firms capitalized at more than 1 billion yen, who responded anonymously. About 240 firms answered questions on foreign exchange.

EXTRA SENSITIVE

Japan's sensitivity to yen weakness has become particularly heightened since 2011 Fukushima disaster led to the shutdown of its nuclear reactors, costing the country an estimated $28 billion in extra fuel imports annually.

"That Japan cuts import costs by reining in energy imports is a matter of utmost urgency and in that sense, getting the nuclear reactors started is the nation's biggest political priority," wrote an executive at an electronics firm.

This month's survey follows results last month that showed only one quarter of Japanese firms preferred an exchange rate of 105 yen or weaker. [ID:nL3N0RH50F]

The yen's quick decline against the dollar in September prompted Finance Minister Taro Aso and other policymakers to warn that rapid moves in foreign exchange are undesirable though he added that the then levels of 108-109 were not that weak.

Eisuke Sakakibara, who led both yen-selling and yen-buying interventions as Japan's currency czar in the 1990s, told Reuters this month that authorities would have to step in if the U.S. currency surged to between 115 and 120 yen, although he does not expect such a rapid decline at present.

The last time Japanese authorities bought the yen was in 1998 when the dollar surged above 140, though economists caution that changes to the economy, including the impact of fuel costs and deflation mean that level cannot be seen as a yardstick today.

Asked to forecast yen moves for the next 12 months, almost 60 percent of firms said they saw it moving between 100 and 110, while 35 percent projected a range of 110-120.

The survey, conducted for Reuters by Nikkei Research, also showed that only 20 percent of firms think the economy - bruised by a sales tax hike this year - is ready to weather a second such tax hike planned for next year. Thirty-three percent say it won't cope while the rest declined to say either way. The result highlights a tough choice for Abe when he makes a final decision on the tax in December.

($1 = 106.24 Japanese yen)

(Editing by William Mallard and Edwina Gibbs)