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With the weak euro dragging down the dollar, the yen has gained strong upward momentum in recent weeks.

The dollar fell below 118.50 yen briefly Friday, a level unseen since early March, and is now around 119 yen.

The catalyst for the euro’s fall was German data regarding business confidence and inflation.

The Ifo business sentiment index for the western part of the country — the leading index of the euro-zone’s business climate — fell 1.4 points to 92.5 in April, its lowest level in almost two years.

The data hit the euro, which had been thought less vulnerable to downward pressure than the dollar and the yen.

There is speculation that a weak euro will prompt U.S. firms to step up forward dealings to hedge their euro-based securities holdings.

Indeed, the euro’s weak showing has raised fears that hard days lie ahead for U.S. technology firms and that a resultant fall in the Nasdaq composite index will return to haunt the U.S. economy.

Monetary authorities appear poised to intervene to check the euro fall. The question that remains is — at what point will they step into the currency market?

Although a quick pickup in capital spending within the U.S. semiconductor industry appears unlikely, the recent enactment of landmark tax-cut legislation should go a long way toward helping shore up the economy.

In Japan, with industrial output falling faster than expected and signs of a capital spending pickup nowhere in sight, worries over the economy’s fragility remain.

Unless the market is convinced that Prime Minister Junichiro Koizumi will deliver on his pledge to put the economy back on track, the yen’s strength can hardly be sustained.

The bad loans that continue to torment the nation’s financial institutions, allied to the quantitative monetary easing policy pursued by the Bank of Japan, dictate that the yen’s volatility in the near term appears inevitable.

Foreign investors were net buyers of Japanese stocks by wide margins in the April-May period, and the question now is whether they will remain net buyers this month.

Nonresidents’ purchases of Japanese stocks have become a major determinant in the yen’s value.

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