The yen was seen at 105 to the dollar a month from now, according to the median of 44 forecasts, and 105.50 three months from now, little different from its rate on Thursday morning in Europe of about 104.75.

"The Japanese economic recovery will continue and (Bank of Japan) monetary policy will bottom out as deflation finally gives way to rising prices," said Peter Stoneham of Thomson Global Markets, who saw the yen at 105.30 a month from now and 103 in three months. "The yen will benefit from higher rates and improving economic fundamentals," he added.

Monetary policy was likely to remain unchanged until the end of the year. But Japanese authorities might overshoot in their efforts to tackle the threat of deflation, raising the possibility of a rise in inflation -- albeit a modest one -- and prompting slightly higher rates. "They may have to move things a little bit early next year," he said.

On the other side, economists expect the dollar to struggle in the New Year due to the old worries of overheated US asset markets.

Capital flows into Japan as the stock market recovers aregiving a big helping hand. Kirit Shah at Sanwa International said foreigners had pumped $60 billion into Japanese equities so far and domestic investors were no longer sending so much money offshore.

"Even if the Japanese do not repatriate capital back home,the mere fact they are reducing fresh outflows will support the yen," he said.

Shah is far more bullish on the yen than the consensus, ashe has been for some time. He saw the yen at 101 to the dollar a month from now, 95 in three months and 87 a year from now. Shah also cited prospects for a large government economic stimulus package shortly.

But confidence in the recovery is still fragile. AlessandraDal Colle of Banca Commerciale Italiana in Milan saw a short term dip to 110 three months out before a recovery to 105 a year from now. "Negative expectations for fourth quarter data may dampen the yen in the medium term but a healthy recovery will afterwards underpin a healthy comeback," she said.