Yen strengthens through 128 level


Currency traders are watching pronouncements out of Japan as the yen continues to rally against the U.S. dollar

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- The Japanese yen continues to strengthen dramatically Friday, breaking below the 128 mark to the U.S. dollar.

The yen stands at 127.69 to the greenback in morning Tokyo trade, after strengthening throughout Thursday in Asian European and U.S. markets. At one point it touched 127.25 in New York trade.

Thursday was the first time the yen had been below 130 since Christmas day. Its 2.5 yen surge was the biggest one-day gain in two years.

Traders are watching pronouncements out of Japan, as the finance ministry repeats calls for a steady currency.

"We are always watching and monitoring the currency market carefully," Haruhiko Kuroda, Japan's top financial diplomat, told reporters on Thursday.

He said he was repeating comments he had made that morning. He was also reiterating comments out of Japan when the yen suddenly weakened at the start of the year.

Talking the yen

At that time, Japanese officials were accused of "talking the yen" up to aid exports. Now there are signs the world's No. 2 economy is in recovery, currency traders are watching carefully to see if they talk it down.

With sudden strength in Japanese stocks, the yen is also moving rapidly in reverse. That shows renewed confidence the reforms of Prime Minister Junichiro Koizumi are taking effect, even at a time his popularity has slumped to record lows since he took office in April 2001.

On the stock market, the Nikkei index rose 2.55 percent to 11,648.34 on Thursday, while the broader Topix index rose 2.33 percent to 1,098.33.

Japanese stocks have run rampant since the Bank of Japan responded to government pressure by easing monetary policy, again.

There were also several figures out of the Ministry of Finance that lent credence to the theory that Japan is rebounding.

A report showed that corporate confidence rebounded sharply in the first quarter of this year. At large companies, sentiment improved from negative 28.3 in the fourth quarter of 2001 to negative 22.1 in 2002.

The last time such a leap happened was in 1999, Richard Jerram, chief Japan economist at ING Barings, noted in a report. That turned out to be the trough of that slump in Japan.

Fourth quarter GDP may show 1% drop

Capital spending was weak, another set of statistics showed. But overall, the figures gave some encouragement.

"On balance, it offers support to our view that the economic cycle is close to a trough," Jerram stated.

But the figures do cause economists temporarily to be even more pessimistic about gross domestic product (GDP) in Japan.

Japan reports its GDP for the fourth quarter of 2001 on Friday. But economists often fault that set of numbers for being both erratic and more of a lagging, or late, indicator.

Economists are now revising forecasts down to a drop of as much as 1 percent, though overall consensus is erring toward caution.

"We doubt whether there is a policy or financial market impact, even from a drop of this magnitude," Jerram said.

The new bullish feel has officials scrambling to take credit. On Tuesday, Bank of Japan Governor Masaru Hayami said his central banks' easing appeared to have relieved markets.

While the "sell Japan" mood has shifted fully into reverse temporarily, Japan skeptics warn they have been fooled by numerous false dawns over the last decade of economic stagnation.