A strong yen and more evidence that dreary weather had hit spending will make it hard for Japan to maintain its world-beating economic growth, analysts said today, but some share investors still found reasons to buy as the yen hovered near its highest levels in more than two years.
The yen's sudden rise has raised concerns that demand for Japan's exports could be crimped just as the economy is showing signs of life, and the currency dominated the thinking of investors as they returned from yesterday's national holiday.
But trading in the foreign exchange market itself was subdued by wariness over the intentions of the Bank of Japan.
After slipping to a low of 110.91 yen yesterday, the dollar was at 112.18 yen in today's late Asian trade.
Japan has spent nine trillion yen ($80 billion) this year trying to keep the yen weak by selling it, mainly for dollars. Analysts say, however, that intervention may not be so easy in future because of resistance from Japan's trading partners, particularly after a weekend Group of Seven meeting in Dubai where it was agreed that markets should set currency rates.
Japan's economic recovery is largely dependent on exports as demand remains weak at home. There was more evidence of that weak demand today. Government data showed that economic activity declined in July as the coolest summer in a decade kept consumers at home, cutting demand at restaurants, hotels and retailers.
Wednesday's data showed that the all-industries index, which measures business activity across all sectors, fell 1.5 per cent in July from June, while the tertiary sector index, a component of the all-industries index covering services, fell 2.5 per cent. Economists had expected falls of 0.4 per cent and 0.7 per cent.