The yen is pulling out of its corrective phase.

The upturn in the dollar's value earlier this year was not accompanied by a flight of money away from yen-based assets and, as such, cannot be sustained for long.

The yen's weakness prompted foreign investors to sell Japanese stocks to adjust their overbought positions and conclude forward yen-selling contracts to hedge their Japanese portfolios.

Japanese institutional investors meanwhile unwound their dollar-selling forward deals.

Foreign investors' net purchases of Japanese equities topped 11 trillion yen last year and the adjustment of their positions can have a significant impact on the dollar-yen exchange rate.

An upturn in the yen's value could prompt them to sell dollars for yen again and speculative buyers of dollars could soon see their profits on long-dollar positions evaporate.

Foreign investors are beginning to reaffirm their confidence in Japanese shares.

The lack of encouraging economic news from Japan could keep them on the sidelines until the end of the fiscal year, but in April a spate of encouraging news will be in the offing -- including the Bank of Japan's quarterly survey on business sentiment that is due out early next month.

The "tankan" survey is expected to brighten the outlook for corporate earnings and business fixed investment.

The yen's renewed strength will then return to haunt the market.

There is speculation that a chunk of high-yield deposits expected to flow out of the government-run postal savings system in fiscal 2000 will go into foreign investment vehicles, putting downward pressure on the yen.

The yen's long-term upward direction, however, is unchanged and it remains to be seen if this situation will materialize.

Japanese individual investors have a history of turning to overseas markets only when the dollar has dropped to an attractive level.

Institutional investors may also refrain from building their foreign portfolios for some time.

In short, the yen appears poised to recoup much of its recent losses against the dollar in the months ahead.