Growing pessimism over the prospects for a Japanese economic recovery and fears of falling share prices sent the yen lower last month.

With the currency market struggling to find its way amid a hoard of unnerving reports on the economy and the financial market, the yen could remain under downward pressure through much of this month.

There were indications the yen's weak showing in recent weeks enticed Japanese exporters and other corporate traders to conclude forward contracts to hedge their dollar holdings against losses.

Their stepped-up sales have helped ease potential selling pressure on the dollar, but dollar holdings at Japanese export-oriented companies still remain at a high level and, as time goes by, could translate into excess dollar supplies in the market again.

The euro has gained ground against the yen of late, but its topside could be capped by delayed sales by Japanese institutional investors and exporters.

Faced with the euro's sudden rise above their in-house target levels, they have lost chances to conclude forward contracts to hedge their euro holdings.

The euro could soon turn lower, however, and its fall could take the dollar lower against the yen along with it.

However, until Japanese traders return from the Bon summer holidays, the market may remain in a holding pattern.

The market is trying to anticipate the outcomes of the Bank of Japan's policy-setting meeting set for Friday and the U.S. Federal Reserve's Federal Open Market Committee meeting set for Aug. 22.

Although the BOJ is widely expected to keep its "zero-interest-rate" policy intact for now, the market is guarded against a possible shift in policy amid signals from BOJ Gov. Masaru Hayami that preparations to end the ultraeasy money policy are in the pipeline.

It is encouraging to note that a recent spate of economic reports has shown a degree of stability has returned to the U.S. economy.

Although it's still anybody's guess, the signs of benign inflation could have made more room for the FOMC to leave its monetary policy unchanged at its forthcoming meeting.