Tokyo, Feb. 14 (Bloomberg) -- The yen may rise after a report showed Japan's economy unexpectedly expanded in the three months ended Dec. 31, easing concern it was headed for recession. Japan's currency traded at 120.38 to the dollar at 3:31 p.m. in Tokyo, from 120.56 late yesterday in New York. The yen was still headed for its third weekly loss against its U.S. counterpart. It was little changed against the euro at 130.52. The yen may climb back from a 1.3 percent decline this year after the government said gross domestic product expanded 0.5 percent in the fourth quarter from the previous three months, boosted by exports. The median forecast of 41 economists surveyed by Bloomberg News was for a 0.4 percent contraction. ``Japan's economy is better than anyone expected,'' said Koji Fukaya, chief analyst of foreign exchange and treasuries at Bank of Tokyo-Mitsubishi Ltd. ``The growth number will support the yen.'' The currency may strengthen to 117 against the dollar by the end of March, he said.
Japan's central bank finished a policy meeting by holding interest rates near zero and refraining from increasing the amount of money it pumps into the banking system, as it waits for the government to name a new head of the bank. The Bank of Japan kept monthly purchases of government bonds from commercial banks unchanged at 1.2 trillion yen ($9.97 billion). The decision was unanimous. The bank probably won't change its policy until Prime Minister Junichiro Koizumi names a successor to Governor Masaru Hayami, whose five-year term ends on March 19, analysts said.
North Korea
Any rise in the yen may be limited after the International Atomic Energy Agency on Wednesday asked the United Nations to deal with North Korea, which last month withdrew from an international treaty preventing the spread of nuclear weapons. The U.S. has increased its military alert status in Asia, making some investors reluctant to put money in the region. The situation in North Korea ``is unambiguously bad for the yen,'' said Peter Clay, currency strategist in Sydney with ABN Amro Holdings NV, the eighth-largest trader in the $1.2-trillion-a- day currency market. The yen may fall to 135 against the euro in the next two weeks, he said. Concern Japan may sell its currency may also limit the yen's rise. The Bank of Japan sold about 700 billion yen ($5.81 billion) in January, and its currency is still 9.2 percent stronger against the dollar than it was 12 months ago.
Shiokawa, Mizoguchi
A stronger yen erodes the profits Japanese exporters earn on overseas sales. Japanese Finance Minister Masajuro Shiokawa earlier this week said he ``welcomes'' the currency's decline. Zembei Mizoguchi, Shiokawa's deputy, said Japan ``will take action in the market when needed.'' ``There's still concern Japan may sell the yen again,'' said Takayuki Nakamura, a fund manager at Daiwa SB Investments Ltd., which has 2.5 trillion yen of assets. He said he would prefer to sell the yen if it strengthens to 120 to the dollar. The dollar headed for its ninth losing week in 11 against the euro on concern a UN report on Iraqi weapons today will bring the U.S. closer to war.
The dollar had its biggest fall yesterday against its European counterpart in four months, and it has dropped 8.6 percent since UN inspections of Iraq's weapons program began in November. Hans Blix, who heads the inspection team, may report that Iraq hasn't accounted for all its weapons, analysts said. U.S. President George W. Bush said he's ``optimistic'' the UN would back the U.S. in a war against Iraq, and vowed to act ``decisively'' to disarm its leader Saddam Hussein. ``The main focus of the market remains on the Iraqi situation, and that's bad for the dollar,'' said Nobuaki Kubo, foreign exchange manager at Daiwa Bank Ltd. The dollar held at $1.0840 against the euro. In other trading, the dollar was little changed against the Swiss franc at 1.3553. The British pound rose to $1.6216 from $1.6197. //www.quote.bloomberg.com