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Japan raises growth forecast as yen slides

Japanese Prime Minister Shinzo Abe gestures as he gives his policy speech during an opening session at the lower house of parliament in Tokyo, Monday, Jan. 28, 2013. Abe whose government faces stiff challenges in reviving the economy and managing an escalating dispute with China over an island chain in the East China Sea said "Let us have strong determination to regain a powerful economy." Abe also said, "We will take every measure to promote and manage and we will give our best efforts to guard the remote islands at the borders." (AP Photo/Koji Sasahara)

TOKYO (AP) -- Anticipating a boost from stimulus spending and a weakening yen, Japan's government on Monday raised its growth forecast, predicting the economy will emerge from recession and expand 2.5 percent in the coming fiscal year.

The yen has dropped more than 10 percent in recent months, reaching its lowest level since July 2010. Share prices have surged in anticipation that higher stimulus spending will boost economic activity, and that the weaker yen will aid exporters.

The Cabinet office's earlier estimate for growth in the fiscal year that starts April was 1.7 percent. It expects inflation-adjusted growth of 1.0 percent in the current fiscal year.

The consumer price index is forecast to rise 0.5 percent, less than the inflation target of 2 percent announced by the central bank and the government last week after lobbying by Prime Minister Shinzo Abe.

Abe took office a month ago and has made his top priorities reviving the economy and ending a prolonged spell of deflation — falling prices that can dampen investment and growth.

The revised forecasts assume the yen will average 87.8 yen per U.S. dollar in fiscal 2013, compared with 81.9 yen per dollar for this fiscal year.

The benchmark Nikkei 225 stock index topped 11,000 for the first time since April 2010 early Monday before falling back to close 0.9 percent lower at 10,824.30.

The yen was trading at 90.68 to the dollar late Monday, after briefly hitting 91.06.