BoJ intervenes to stop yen rising

THE BANK of Japan stepped up its intervention in the currency markets to keep the yen from rising, after a survey yesterday showed an improvement in business confidence.

The Tankan survey showed the Japanese economy remains in feeble condition, but confirmed earlier signs that it is becoming less weak. The survey followed a surprise and probably fluke jump of 1.9 per cent in GDP in the first quarter of this year.

The government helped boost sentiment with the announcement that it planned a further boost from increased public spending.

It issued no details, but Taichi Sakaiya, the economic planning minister, said a supplementary budget would be needed to keep expenditure at a high level once existing public works programmes expired at the end of this year.

The heavy sales of yen on the foreign exchanges by the Bank of Japan took the currency back below the 122 to the dollar mark. The dollar went as high as 122.85 from 121.20 on Friday.

It was the latest in a series of high-profile moves to prevent an early appreciation of the yen which could threaten export growth. Finance ministry officials yesterday repeated earlier warnings that the yen would not be allowed to rise "prematurely".

Japanese government bonds and share prices also made gains, taking heart both from the glimmers of hope about the economy and the fact that these are so faint there is no prospect of an increase in interest rates on the horizon. The Nikkei index ended more than 202 points higher at 18,135.06.

Yesterday's Tankan survey showed an improvement for the second successive quarter in the index of sentiment among big manufacturers, up from minus 47 in March to minus 37.

Hiromu Nonaka, a government spokesman, said: "The perception that the economy has hit the bottom has led to the improvement in corporate sentiment."

For the first time in a year big businesses' assessment of their financial position was positive, suggesting the credit crunch is starting to ease, although smaller companies reported they were still finding it hard to raise funds.

Less encouragingly, companies again said they planned to cut their investment spending in the next 12 months, although some analysts welcomed this as a sign that much-needed corporate restructuring is under way.

Matthew Wickens, an economist at ABN-Amro, said: "This survey does confirm that the economy has turned."

But some analysts remained gloomy about Japan's growth prospects. "It is hard to see how the economy can grow when companies are cutting back on investment," said Michael Dicks at Lehman Brothers.