After briefly testing the 110 yen level earlier this month, the dollar has given up much of its recent gains and is now hovering around 107 yen.

Still, the continuing flow of foreign funds out of Japanese stocks could presage a weaker yen.

The dollar’s strong showing in recent weeks was mainly due to speculative purchases and Bank of Japan Gov. Masaru Hayami’s remarks suggesting an end to the nation’s ultraeasy money policy.

The upturn in the dollar’s value prompted Japanese export-oriented firms to step up forward dollar-selling to cover their export claims, including those for settlement in the final quarter of this year.

Forward dollar-selling helps ease potential selling pressure in the months ahead.

Foreign investors have visibly been unwinding their Japanese portfolios in the past two months to cash in on profits and repatriate their funds back to their home markets.

Hayami’s stated aim is to end the policy of keeping the key short-term interest rate effectively at zero and cannot be taken to indicate a switch to a tight money policy.

With the government left with limited room to spend its way out of the recession and restructuring efforts well under way in industries, the nation could be heading to a slowdown in economic growth next year.

Under such circumstances, the BOJ will have little choice but to continue an easy money policy.

The U.S. Federal Reserve, for its part, appears poised to further tighten its grip on credit, and a tight U.S. monetary policy vs. an easy one in Japan will long remain a major consideration in the currency market.

The interest rate differential between Japan and the U.S. — now close to 5 percent — can offset a 20 percent rise in the yen’s value in 10 years.

Judging from stronger growth potential in the U.S. than in Japan, and with U.S. inflation expected to remain under tight control for years to come, the yen’s steep appreciation against the dollar appears unlikely.

When it becomes evident that the Fed will succeed in its aim to engineer a soft landing in which growth slows enough to keep inflation from getting out of hand, money will begin flowing into the U.S. financial markets at an accelerating pace.