The New York Fed president's words caused the dollar to instantly drop 0.20 yen to around 105.40 yen and the euro to fall 0.25 yen to about 100.45 yen, reflecting the market's will to bet for a further advance of the Japanese currency.

Talking to businesspeople in Tokyo, McDonough expressed great optimism about Japan's economic prospects saying he predicted a "Japanese economic miracle".He said his confidence was shared by sophisticated US investors who told him that they were "absolutely euphoric" about Japan's outlook based on its embrace of new technologies and restructuring of old industries.

Regarding the euro, McDonough said the current exchange level of the European single currency posed no problem from an economic perspective, and added that movements in the dollar against the yen were no threat for the US economy. "McDonough's words gave momentum to the yen, but the marketis very nervous about the possibility of BOJ (yen-selling) intervention at this time of the day," said a Japanese trust bank dealer.

The dollar, which tumbled to a four-week low of 105.00 yenovernight was quoted at 105.61/62 yen by 0617 GMT against 105.69 yen in late U.S. Trading.The euro stood at 100.56/76 yen after dropping to a recordlow of 100.02 yen overnight and compared with 100.66 yen in late US trading on Wednesday.