Heizo Takenaka, economic and fiscal policy minister, indicated Thursday his continuing tolerance of the yen's current weakness against the dollar.

"I don't think the yen's current exchange rate is far from economic fundamentals," Takenaka said, adding the yen's weakness stems partly from the U.S. economy's faster-than-expected recovery.

However, Takenaka declined to comment on desirable exchange rates.

The dollar hit a three-year high against the yen Thursday morning in Tokyo as the sharpest year-on-year decline in Japan's industrial output in the past quarter century helped the dollar soar to the mid-131 yen range.

Dismal Japanese industrial output data and more remarks from Japanese financial officials indicating they were tolerant of the yen's fall saw the dollar shoot up against the yen in Tokyo on Thursday, briefly cracking the 132 yen threshold in the afternoon.

At 5 p.m., the dollar was quoted at 131 yen.67-70, compared with Wednesday's 5 p.m. quotes in New York of 130 yen.85-95 -- the highest there since October 1998 -- and 130 yen.70-73 in Tokyo.

During the day, the dollar moved between 130.84 yen and 132.08 yen, trading most frequently at 131.30 yen. It is the first time since Oct. 6, 1998 that the dollar has risen above 132 yen in Tokyo.

Takenaka suggested the government's zero percent growth target for fiscal 2002 will be achieved without the creation of extra budgets.

"We project a zero percent growth for fiscal 2002 as we expect a recovery in private demand," Takenaka said. "The zero growth does not count on extra budgets."

But the government will be flexible in extending fiscal stimulus in the case of an emergency, he added.

Many major think tanks forecast an economic contraction in fiscal 2002, marking the second consecutive year of shrinkage.

As for the policymaking process, Takenaka said Prime Minister Junichiro Koizumi's Cabinet will strengthen dialogue with the ruling coalition parties to decide on economic and fiscal policies.

The Council on Economic and Fiscal Policy, which is headed by Koizumi, has been taking a leading role in compiling key economic and fiscal policies since it was established in January. However, some lawmakers in the ruling coalition parties, which want more say in compiling key policies, have expressed dissatisfaction with the policymaking process.

Fundamentals to blame

Katsusada Hirose, vice minister of economy, trade and industry, blamed the yen's current weakness to the dollar on the decline in Japan's economic fundamentals.

"The recent trend is, unfortunately, in part reflecting the economic fundamentals of Japan," Hirose said Thursday. "It's the best for the economy that the exchange rate moves in a stable manner."

The dollar hit a three-year high against the yen in Tokyo on Thursday morning as the sharpest year-on-year decline in Japan's industrial output in the past quarter century pushed the dollar to the mid-131 yen range.