Despite the slowdown in U.S. economic growth, all underlying economic factors other than the U.S. trade deficit still favor the dollar relative to the yen.
There appears to be a good chance the dollar will gain further ground and hit 130 yen later this year.
The question is whether this level will be maintained.
Although the United States remains committed to a strong-dollar policy, allowing a weak yen could set off a fierce outcry in U.S. industry once the trade deficit exceeds a certain limit.
The administration of President-elect George W. Bush would shun confrontation with Congress over a trade dispute.
The yen's fall against the dollar, which also means a weaker yen against Asian currencies closely linked to the greenback, helps Japanese manufacturers improve their competitive position in Asia.
Asian economies could plunge into a fresh crisis if Japan, Asia's strongest economy, keeps a competitive edge over its neighbors for long.
A further fall in the yen should prompt Japanese monetary authorities to intervene to keep it from falling further.
Although the possibility of the dollar exceeding 130 yen cannot be ruled out, the dollar's topside would be capped by growing sales and this level may emerge as a target for those considering placing their money in foreign currency deposits and for exporters to conclude forward dollar-selling contracts.