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The recent rise of the yen against the U.S. dollar could send the Japanese economy into a second dip, even though Japan’s real gross domestic product has grown for two consecutive quarters. The yen’s sharp rise would hit the profits of export-oriented companies hard. Before the rise, the government declared that the economy was in a state of mild deflation. The yen’s climb may push down the prices of imported goods, benefiting consumers, but this would accelerate deflation, further contracting economic activity.

On Friday, the yen rose to a level against the dollar unseen for 14 years and four months. This followed a report that a Dubai government investment fund had asked creditors for an extension on forthcoming repayments, which caused the Euro to fall amid fears that European banks might suffer losses. Since Japan did not suffer much direct damage from the financial crisis that started in the United States in the autumn of 2008, the yen was bought as a relatively safe asset.

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