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Japanese economy still poised to pick up despite strong yen
August 9, 2011 / 3:42 PM / in 6 years

Japanese economy still poised to pick up despite strong yen

TOKYO, Aug 9 (Reuters) - Japan’s economy will recover in the latter half of this fiscal year despite growing worries about the global economy and the yen’s continued strength even after official intervention in the currency market, a Reuters poll shows.

The world’s third-biggest economy will emerge from recession this quarter and is expected to grow moderately thereaf ter, according to a poll of 50 economists taken over the past week.

Gross domestic product will grow 1.2 percent in the current quarter, the median estimate of the poll conducted from August 2-8 showed, largely in line with a 1.1 percent expansion forecast made in the July poll.

The expansion would follow a 0.7 percent contraction in April-June, unchanged from the July forecast and the third straight quarterly contraction.

But the strong yen could squeeze Japanese exporters’ profits, and worries about the outlook for the euro zone and U. S. debt problems are making investors cautious, leading some analysts to warn they could trim their growth forecasts later this year.

“At the moment, the economy is expected to recover steadily within the fiscal year on the back of an improvement in supply constraints and post-quake reconstruction demand,” said

Shuji Tonouchi, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“But if the yen stays strong, it could weigh on export growth. In that case, we may trim our economic growth forecast for the second half of this fiscal year.”

Japanese authorities intervened to stem the yen’s strength and the central bank eased monetary policy last week to ease pressure on the export-reliant economy after the yen spiked close to a record high.

But ratings agency Moody’s warned on Monday that Tokyo’s efforts to weaken the yen were ineffective and negative for its sovereign credit ratings, and a Reuters poll last wee k forecast safe-haven demand would keep the yen at high levels.

Big Japanese manufacturers estimate the average dollar/yen rate for the current fiscal year at 82.59 yen, the

Bank of Japan’s business sentiment survey showed last mo nth. But the yen is now stronger than 80.00 to the dollar, trading at 76.991 to the dollar on Tuesday.

Following Standard and Poor’s downgrade of the United States’ credit rating and as tensions in the euro zone debt market heightened, the Group of Seven nations on Monday p ledged to take coordinated action to ensure liquidity and to support financial markets’ functioning, financial stability and economic growth.

“The possibility of Japan intervening in the currency market and the Bank of Japan easing policy further is still there,” said Yoshimasa Maruyama, chief economist at

Itochu Economic Research Institute.

“If the dollar is sold sharply, not only against the yen but also against other currencies, we cannot deny a possibility of coordinated intervention.”

With economic recovery expected, analysts held their projection that the Bank of Japan will keep its overnight call rate target near zero at least until the end of next year.

Japan’s consumer inflation is forecast at 0.4 percent in this fiscal year to March 2012 and 0.3 percent in the next fiscal year, the poll showed, unchanged from the July survey.

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