Calm has returned to the world’s financial markets.

All around the globe, foreign exchange, stock and bond markets have all re- turned to a degree of stability, putting the months of volatile trading behind them.

The global stock market boom that sent share prices galloping ahead in 1999 and early this year is now only a memory. The corrections that ensued have also apparently run their course.

Mergers and acquisitions — a major morale booster — have visibly subsided. With speculation over corporate acquisitions no longer in the game, the volume of stock trading has dwindled.

Against this backdrop, major hedge funds have visibly reduced their operations in favor of a conservative strategy, a departure from years of aggressive asset management on global markets.

Given the uncertainty of future stock market prospects and the lower rate of risk that institutional investors are now allowed to take in new investment, they could remain on the sidelines for a long time both at home and abroad.

Viewed from a longer perspective, the dollar appears likely to turn lower this fall after remaining locked within a relatively narrow range between 105 yen and 110 yen through much of this summer.

The dollar could run into some resistance when it approaches 110 yen and give up ground against the yen.

New York share prices could rebound, reacting favorably to signs of slowing in the U.S. economy, but their upside would be capped by occasional bouts of selling.

In Japan, economic prospects remain a guess. Although official figures released last week showed a 0.5 percent real rise in gross domestic product in fiscal 1999, political uncertainty ahead of the general election is clouding prospects for the financial markets at home.

Emerging as a focal point in Japan is an anticipated monetary policy switch. There is speculation that the Bank of Japan is looking for the right timing to abandon its “zero-interest-rate” policy.

In the yen’s favor are signs of slowdown in the U.S. and economic recovery in Asia that could give a major lift to Japanese exports of high-technology and other goods.

In short, the yen could test 100 to the dollar later this year.