Investors scurried to snap up the yen yesterday on news that Japanese authorities may upgrade a forecast for anaemic economic growth this financial year. "We are considering a review in that direction," an official from the economic planning agency said. "But we cannot give details yet."
The news was the break in the gloom that bullish foreign exchange investors had been expecting, analysts said, and it sent the yen rallying close to three-and-a-half year highs.
Ironically, a strong yen hurts earnings for major exporters like Sony Corp, and the currency's rally sent Tokyo stocks falling.
Japan's leading business daily, the Nihon Keizai Shimbun, said Tokyo would raise the forecast for GDP for the year to next March from 0.5 percent to 0.9 percent.
The revision would be announced mid-November, the newspaper said, at the same time as the authorities disclose a new state spending package to keep the economy rolling.
That package is expected to top ?10 trillion (US$96 billion).
In late afternoon trade, the yen peaked at 103.71 to the dollar before falling back, compared to 105.12-15 in Tokyo late Tuesday.
The currency had rallied to 103.17 to the dollar on Sept. 16, a three-and-a-half year high.
"Foreign investors took heart from the [reported] GDP upgrade, triggering yen-buying today," said Kiyoshi Kuzuhara, a dealer at Bank of Tokyo-Mitsubishi Ltd.
But people sold off stocks in export-oriented companies. The Tokyo Stock Exchange's Nikkei average of 225 selected issues lost 1.6 percent, to close at 17,382.36.
Makoto Ishikawa, an analyst at Japan Research Institute, said the economic growth upgrade had been expected. "We estimate GDP growth for the year at around 1.0 percent, given steady growth in the April-June quarter, strong industrial production data, a slight recovery in consumer sentiment as well as a recent recovery in exports," Ishikawa said.
Japan's economy grew 0.2 percent in the three months to June and 2 percent in the three months to March. The economic planning agency reportedly expects up to 1.2 percent growth in the full year to March.
But the agency would set a conservative target on the assumption that public and housing investment, the main engines of growth in past months, will decline, the Nihon Keizai Shimbun said.
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