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Wednesday, 22 May, 2002, 06:35 GMT 07:35 UK
Signs of hope for Japan economy
A yen information board in Tokyo
The yen has fluctuated wildly this year
In a sign of cautious optimism, the Bank of Japan (BoJ) has upgraded its assessment of the economy for a third straight month, as a key barometer of service industries rose for the first time in four months.

Analysts had been expecting a pick-up in the economy, fuelled by the weak yen earlier in the year, but some now hope that the good news has spread from exporters into the wider economy.

A surprisingly strong 1.2% jump in the government's tertiary industries index in March showed service companies in the transport, telecoms and retail sectors starting to recover.

But in its monthly report, the central bank warned that the recovery could be derailed, especially by the yen, which has fluctuated wildly against the dollar this year.

At the same time as releasing its report, the bank was intervening in foreign exchange markets, in a bid to prevent the dollar falling too sharply against the yen.

Feeling cheery

Overall, however, the bank's report was the most optimistic it has released in years.

"The pace of deterioration in Japan's economy has moderated, with production starting to pick up, reflecting the increase in exports and progress in inventory adjustments," the report said .

Most now predict Japan - mired in an all-out recession - will record strong quarter-on-quarter economic growth for the first three months of the year.

Japan is due to release first-quarter gross domestic product figures on 7 June.

Cheer over the country's economic prospects helped spur a rally on the Tokyo markets, with the Nikkei 225 blue-chip share index closing up 160.82 points, or 1.4%, at 11,961.98.

Ups and downs

In the meantime, however, the yen has continued to seesaw, plunging early in the year, and then recovering strongly.

On Wednesday, the dollar fell to a new five-month low of 123.5 yen.

According to traders, the BoJ started buying dollars for 125 yen late on Tuesday, a relatively rare move that briefly pushed the dollar up as high as 125.02 yen.

Officially, the Japanese finance ministry is concerned to moderate fluctuations in the exchange rate.

But unofficially, the government is also keen to see the yen remain relatively weak, as it boosts the fortunes of exporters.


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