Japan's yen-selling intervention against the dollar is appropriate due to the country's limited policy options to rescue the economy from deflation, Horst Koehler, managing director of the International Monetary Fund, said Wednesday in Tokyo.

Japanese monetary policy, which has capped its short-term interest rates almost at zero, doesn't have much room for economic stimulus, Koehler said.

"I do think it was pragmatic and it helps to stabilize the financial system and also to battle deflation," he told a news conference.

It was the last day of his two-day visit to Tokyo, where he met top financial authorities as well as Prime Minister Junichiro Koizumi.

But he also said he viewed the intervention as a temporary policy and not aimed at fixing foreign-exchange rates.

Japanese monetary authorities spent 7.15 trillion yen on currency intervention in January, a single-month record. That came on the heels of a record 20.4 trillion yen spent on intervention in 2003.

But the yen rose by about 10 percent against the dollar over the past year.

Experts say Japan's yen-selling intervention irritates U.S. manufacturers, who claim Japan is trying to devalue the yen artificially to boost exports and profits of its own companies.

Koehler said he expects the Japanese economy to grow 3 percent or better in 2004, better than the IMF's forecast last fall of 2.2 percent growth.

The comments came after the Cabinet Office announced last week that the economy expanded a real 1.7 percent in the October-December period, the best showing in 13 1/2 years.

The real growth in gross domestic product, the value of goods and services produced domestically, would translate into a 7 percent annual expansion, it said.