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Dollar's jump seen

helping Japan

economic recovery

TOKYO: The dollar's leap against the yen will help Japan as it maps out new measures to set its sluggish economy back on a recovery path, economists said.

The lower yen, coupled with a surge in Tokyo share prices, will also cheer up business sentiment, lessening the need for a cut in Japan's key lending rate, which financial markets had speculated was imminent, they said.

The dollar rallied in Tokyo on Wednesday after the central banks of the United States, Japan and Germany jointly bought it overnight. It briefly hit a six-month high of 99.05 yen.

"The recent weakness in the yen and strength in the stock market will be one of the major factors to trigger economic recovery," said Shigeru Saito, an economist at Daiwa Institute of Research.

The dollar's jump against the yen also pushed up Tokyo stocks, with the key Nikkei average closing more than four percent higher at a six-month high of 18,158.73 points.

"If the Japanese currency depreciates by 10 percent, that lifts corporate profits in Japan by 12 percentage points," Jesper Koll, head of research at J.P. Morgan Securities Asia Ltd, told Reuters Financial Television.

Koll said earnings of Japanese firms would rise an average 20 percent in the year to next March 31 if the dollar stayed between 95 yen and 100 yen. He had previously forecast an eight percent rise in 1995/96 corporate profits.

Saito estimated that a rise of about 10 yen in the dollar would push up Japan's economic growth in real terms by 0.4 percentage point.

But some economists did not deny the possibility of coordinated action among the monetary authorities of the United States, Japan and Germany on interest rates.

"If the U.S. cuts rates, currency markets may revert back towards the trend of a stronger yen from the interest rate differentials. As a result, Japan may have to cut its rate along with the U.S., and the same for Germany," Saito said.

The stronger dollar would also magnify positive effects of an economic stimulus package and a banking bail-out programme planned by the government, economists said.-Reuter