New York, March 18 (Bloomberg) -- The dollar had its biggest
advance against the yen in 11 months on expectations that
quickening U.S. economic growth will attract Japanese investors.
The U.S. currency rose 1.8 percent to 131.38 yen from 129
Friday after Merrill Lynch & Co. and Salomon Smith Barney
Inc. said the world's biggest economy will expand at an
annual pace of at least 5 percent this quarter. Analysts
say that growth will lure money from Japan, which is mired
in its third recession in a decade, after the country's
new fiscal year begins on April 1.
``It looks like the dollar is set up for some strong performance''
against the yen, said Eric Nickerson, head of global currency
strategy at Bank of America Corp. He forecasts the dollar
will rise to a 3 1/2-year high of 140 yen in the next two
months, fueled in part by Japanese companies investing overseas.
Evidence mounted last week that the pace of the U.S. recovery
is accelerating. A consumer confidence index rose more than
expected in March and industrial production increased for
a second month in February.
Those economic reports spurred expectations Federal Reserve
policy makers meeting tomorrow will abandon the view they've
held the past 15 months that the biggest threat to the economy
is weak growth. Analysts say that shift would be the Fed's
first step toward reversing some of last year's 11 reductions
that left the overnight rate at a 40-year low of 1.75 percent.
Merrill Lynch, the biggest brokerage, said today the U.S.
economy may grow at a 5 percent to 6 percent annual pace
in the first quarter, fueling a rebound in corporate profits.
Salomon economist Steven Wieting also projected a rate of
expansion above 5 percent and raised his estimate for corporate
Analysts forecast on average that Japan's economy will
shrink 1.3 percent this year, according to a Bloomberg News
survey done in January.
The dollar's rise, the biggest against the yen since March
30, 2001, reverses some of its 3 percent loss in the first
nine weeks of the year as Japanese companies brought foreign
profits home before the end of the fiscal year.
The dollar also gained against the euro, rising to 88.14
cents per euro from 88.28 Friday, and against the Swiss
Sumitomo Life Insurance Co., Sakura Investment Management
Co. and Kokusai Asset Management Co. are among Japanese
money managers that have said in recent weeks that they
may increase U.S. assets come April.
Investment options in Japan are less attractive, they say.
The Nikkei 225 stock average, which rallied earlier this
month to the highest level since August, is expected to
falter in the next few weeks. The Nikkei fell 1.3 percent
Japanese Pension Funds
Japanese government measures to prop up stocks were the
principal source of support for share prices, say analysts.
They say that help may not run much past the March 31 end
of the fiscal year. Japanese 10-year government bonds yield
about 1.5 percent, compared with the 5.34 percent yield
on 10-year Treasury notes.
Currency traders also speculate that Japan's biggest government-run
pension fund may buy dollars, after it said last week it
will buy about 2.6 trillion yen ($19.8 billion) in overseas
bonds and stocks in the year starting April 1.
``The speculation is strong that such pension fund dollar-
buying for the new fiscal year will start coming into the
market this week,'' said Masamichi Nomura, head of foreign
exchange trading at BNP Paribas SA in Tokyo.
Today's slump in the yen was also triggered by investors
reversing earlier bets that the yen would keep strengthening.
Data through last Tuesday shows that speculators had amassed
the largest amount of such yen long bets since October,
according to the Commodities Futures Trading Commission.
Bank of America's Nickerson said he doesn't expect the
dollar's surge to persist much past today's level this month,
given that Japan's fiscal year end is still almost two weeks
``Anyone who needs to repatriate funds is going to be clapping
their hands'' as they now can get more yen for their dollars,