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The yen could remain under downward pressure for some time amid concern over the nation’s economic prospects.

A preliminary government report showed early last week that gross domestic product fell 0.2 percent in the January-March quarter, while another government report conceded that the economy is “deteriorating.”

The Bank of Japan, which decided to leave its monetary policy intact at a June 14-15 policy-setting committee meeting, also downgraded its assessment of the economy in its monthly report released Monday.

It now appears certain that the disposal of bad loans from Japanese banks will come up for discussion at the Japan-U.S. summit in Washington this month.

Ahead of the summit, the BOJ may come under pressure to do more to help shore up the economy.

Against this backdrop, attention will again focus on the BOJ’s policy-setting committee meeting Thursday.

The U.S. Federal Reserve’s latest survey of regional economic conditions, released June 13, offered evidence of weakness in the U.S. economy.

The “beige book” summary painted a gloomy picture of the economy, saying consumer spending was “slow to flat.”

The Fed’s policy-setting committee is now expected to cut key interest rates by half a percentage point at its two-day meeting from Tuesday, instead of waiting until its next meeting on Aug. 21. Pundits had previously anticipated a quarter-point cut.

While the dollar could gain ground against the yen after further credit easing by the Fed, a strengthening dollar would raise an outcry from U.S. manufacturers.

Japan’s currency, rebounding earlier this week after BOJ Gov. Masaru Hayami hinted at support for a stronger yen, recouped some of its recent losses against the dollar.

Speaking to reporters, Hayami expressed concern over the volatility of yen-dollar exchange rates, indicating the possibility of the BOJ stepping in to keep the yen from falling further.

The market is awaiting the BOJ’s quarterly “tankan” survey on business sentiment, due out early next month, and the annual Group of Seven summit in mid-July.

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