The yen reached a seven-month high against the US dollar yesterday after official suggestions that the Japanese economy was heading for better than expected growth in coming months.

The Japanese currency broke the Y110 to the dollar barrier for the first time in six months and briefly touched Y109.05 - Y2 stronger than last week.

Analysts said it was automatic sell orders at Y110.50 that had driven the yen through the Y110 level. It was a breach of Y110 that appeared to prompt intervention by the Bank of Japan in January to weaken the currency, since when it has conducted an intermittent market intervention campaign.

At the same time the euro fell to a new low against the yen, touching Y114.77, 1 per cent down on the day and 14 per cent below the levels it started at in January.

The surge in the yen prompted fresh speculation that Japan might be poised to intervene soon to weaken the currency. Japanese officials have told their colleagues at a meeting of deputy finance ministers of the Group of Seven leading industrialised nations that further yen rises could prove painful for the economy.

But there were no immediate indications from the G7 meeting in Berlin yesterday that intervention was pending. Haruhiko Kuroda, Japan's vice-finance minister for international affairs, declined to comment as he left the meeting, while Caio Koch-Weser, his German counterpart, would say only that foreign exchange developments were discussed as part of talks on the global economy.

The Ministry of International Trade and Industry yesterday announced that industrial production fell 0.6 per cent between June and July. However, MITI forecast that production would rise by 4.7 per cent in August and 0.2 per cent in September, suggesting a rise of 4.3 per cent in the July-September quarter compared with a year before.

Job creation, however, remains difficult. The Economic Planning Agency said the unemployment rate remained stuck at a post-war high of 4.9 per cent for the second month in a row in July.