In the next few days minds are likely to be focusing on the direction of the Japanese yen and what that means for Asian equities. The release of the bellwether quarterly tankan survey of Japanese business conditions today is closely followed by a meeting of the Group of Eight leading industrialised nations' finance ministers at the weekend. These events should give the Bank of Japan a clearer picture of whether it can get away with abandoning what has become known as 'zirp', or a zero interest rate policy, as it has been threatening to do. Expectations of higher growth in the tankan and an approval from the G8 would give the BOJ room to raise rates, perhaps as soon as a meeting set for July 17. Bank of America thought the BOJ would delay a decision until it reviewed the level of summer corporate bonuses. By then, Bank of America expected evidence of a weaker Japanese economy to be visible. 'We expect that they will decide to delay the change in policy and possibly miss raising rates entirely this year,' Bank of America said. 'However, this is a minority opinion - the markets are clearly pricing in a rate [increase] by September.' When the expected rate rise failed to come through, the yen would head down to 115 to the US dollar by year end, the bank said. That would mean a breakout from a 105 to 110 trading range the yen has been in this year, causing fears to resurface that Beijing might rethink its steady yuan policy. While a significantly weaker yen by year-end would probably be bad news for Asian stocks, it is far from being a consensus view. Salomon Smith Barney Asia-Pacific equity strategy head Han Ong said even if a rate rise were to come through, it would be little more than symbolic. 'Even the most hawkish are only talking about 10 basis points,' Mr Ong said. Besides, the reduction in majority the Liberal Democratic Party suffered in Japan's general elections last month meant plans for a tighter fiscal policy to cut a yawning budget deficit would be shelved. A further supplementary budget could be on the horizon. 'If they use fiscal stimulation, that would also strengthen the currency,' Mr Ong said. Salomon expected the yen to move sideways but Morgan Stanley Dean Witter has set a punchy year-end target of 90 to the dollar on worries about Washington's current account deficit. Morgan Stanley's Asia strategist Ajay Kapur said: 'A strong Japanese yen is always a good thing for Asian equity markets without a doubt.' If the yen did head north against the dollar, he recommended picking up firms in Asia ex-Japan which produced exports competing with Japan's, such as semiconductor, electronic, petrochemical and vehicle stocks. Dresdner RCM Global Investors chief economist Andrew Hunt argued that the key for Asian stocks might not be so much the level of the yen but Japanese monetary policy. The BOJ had been lending money to commercial banks at five basis points, allowing them to make easy profits from buying Japanese government bonds with a 40 basis point coupon. The cycle helped bank profits rise 42 per cent last year, Mr Hunt said, and allowed the sector to pump money into corporate Japan, bolstering capital expenditure and ultimately consumer spending. However, the cycle had been broken by BOJ officials' hawkish comments. Commercial banks then factored in a 25 basis point cost of funding, rendering the government bond trade no longer viable, particularly with falling bond prices because of perceived rising rates. 'The banks just walked away from it,' Mr Hunt said, leading to a clear slowing in the Japanese economy in the second quarter. Southeast Asia was now suffering from falling export growth due to a fall in demand from Japan, not the United States, he said. 'Asian economies had a great first quarter but now the music has stopped.' What was needed to restart Japanese and regional growth was for BOJ to respond to weaker data by saying it would not raise rates. Mr Hunt is forecasting the yen to go 'below 100' against the dollar by year end as interest rate rises strangle US growth.