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The yen has gained ground against the dollar in recent days, but the long-range direction of its value remains unchanged — downward.

Given the Bank of Japan’s ultraeasy money policy, the yen’s unchecked rise appears unlikely.

Domestic investors are opting for foreign securities, spurning low-yielding Japanese financial instruments.

Besides, international investors are engaged in carry trades, banking on interest rate differentials between Japan and the United States.

In a carry trade, hedge funds borrow yen at low interest rates in Japan and convert them to dollars at higher rates elsewhere, using the money to invest in U.S. Treasury bonds and other foreign instruments.

Although the new Cabinet has won an extraordinarily high public approval rating, it remains to be seen how much political clout Prime Minister Junichiro Koizumi and his financial and economic aides have.

If the financial market grows skeptical about Koizumi’s leadership, a broad “sell Japan” mentality might develop again.

A key downside factor for the dollar is the recent weakness in the U.S. economy.

The market was alerted by U.S. jobs data last week.

U.S. nonfarm payrolls fell by 223,000 in April, the largest fall in 10 years, according to the Labor Department report.

What’s more, the unemployment rate rose to 4.5 percent from 4.3 percent a month earlier, paced by declines in manufacturing and service jobs.

The report provides fresh evidence of the weakness of the U.S. economy, raising fears of a further fall in household income and a slump in consumer spending.

A deeper and more prolonged downturn will no doubt weigh down on the dollar.

When it comes to fiscal and monetary policy measures to reflate the economy, nevertheless, Washington is left with more room than Tokyo to lower interest rates and reduce taxes.

Should signs of U.S. economic recovery become discernible in the summer, helping shore up the Japanese economy, the yen could gain ground in the second half of the year.

However, such a bullish scenario for the yen appears unlikely in the near term.

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