Triggering the dollar’s fall in recent weeks was a switch in the global investment flow back into equities.

Having shunned stocks for the safety of fixed-income securities earlier in the year, investors have returned to equity markets in search of capital gains as the upturn in New York share prices has spilled over into the Tokyo stock market, providing a major lift to the benchmark Nikkei average and the yen.

The yen’s strong showing also reflects optimism about the Cabinet of Prime Minister Junichiro Koizumi.

For foreign investors, restructuring programs under way are often a main consideration.

The question now is how long the high-priced global stock market activity will continue and how long foreign investors will remain bullish on the outlook for Tokyo stocks.

In reality, the current global environment is far from favorable for stock markets.

Last week’s U.S. jobs figures for April were much weaker than many analysts had forecast. The figures are a lagging indicator as well as a bellwether of ups and downs in household income.

A slump in consumer spending coupled with a fall in business fixed investment has cast a long shadow over economic prospects and, hence, over the outlook for the New York Stock Exchange.

A shift in market sentiment for the worse would drive down New York share prices and the yen as well.

Still, a fall in investor confidence in Tokyo stock prices appears unlikely in the near term.

Koizumi’s first policy speech before the Diet on Monday has largely been factored into share prices, but worries about developments on the political front are not yet out of the way.

Foreign investors are trying to gauge the outcome of the July Upper House election. Until then, the yen is not likely to give up much ground against the dollar.

Potentially, a key downside factor for the dollar is a fall in New York stock prices.

Should further U.S. interest rate cuts fail to shore up the stock market, the dollar could face selling pressure against the euro and fall under 120 yen.

All told, the dollar’s rise above 125 yen in the foreseeable future now appears unlikely.

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