In its annual report, the Economic Planning Agency said the strong currency is unlikely to be as big a burden on Japanese companies as in the past. It said corporations have learned to cope, and that the high exchange rate would speed up corporate restructuring and boost profits.
"There are negative effects of the higher yen in the short term, but we also see positive factors in the longer term," said an agency official.
However, officials indicated that further intervention on the foreign exchanges to hold down the yen was likely, if the currency moved too fast. This followed Friday's intervention by the Bank of Japan to buy dollars for yen.
Masaru Hayami, the Governor of the Bank of Japan, said the strength of the yen reflected growing overseas confidence in the Japanese economy. But Nobuaki Usui, the vice-finance minister, said decisive steps would be taken in the currency markets if necessary.
The yen fell slightly against the dollar yesterday to 102.60 from below 102 on Friday. It has climbed from around 125 in May.
The EPA report added that recovery in South-east Asian economies was also helping Japanese exporters.
As if to emphasise the point, yesterday the Bank of Korea published a revised new forecast for the economy's growth in 2000, now expected to be 7.2 per cent rather than 6.4 per cent. This will follow a bounce in GDP of more than 10 per cent this year, after 1998's financial and economic crisis. South Korean shares soared yesterday.
The recovery in Asia is helping boost Japan's exports, with higher industrial production making up for weak consumer demand. The EPA report predicted Japan's GDP would rise by 1 per cent in the fiscal year starting next April, compared with likely growth of 0.6 per cent in the current year.
These predictions are in line with most outside forecasts for the economy, which have become steadily more optimistic over the course of the past year. But to make sure the recovery stays on track, Japan's cabinet on Friday approved the country's biggest ever budget for the year starting in April.
Yesterday's figures showed a 3.8 per cent month-on-month increase in industrial output and a rise of 8.1 per cent in construction orders in November. However, retail sales in November were 2.8 per cent down year- on-year, the 19th consecutive month of decline.Reuse content