Caught between fears of a domestic crisis in March and expectations of government measures to fight deflation, the dollar-yen rate has remained stuck in a relatively narrow range between 131 yen and 135 yen in recent weeks.

The strong economic fundamentals of the United States are working in the dollar's favor, while in Japan worries remain over the banks' bad-loan burden.

In a development unseen in the past, U.S. industrial productivity has held its own during the recent economic downturn, refusing to fall below the previous year's levels. This has kept foreign capital flowing into U.S. financial markets. In Japan, however, the bad-loan mess is undermining efforts to get the economy back on track.

The Daiei Inc. restructuring program, which hinges largely on a time-consuming debt swap and debt forgiveness scheme, may serve as a model for future bailouts.

The lack of a clear scenario for early disposal of soured loans has caused skepticism among foreign investors.

Still, a steep yen fall seems unlikely in the near term.

Emerging as another determinant in the dollar-yen rate are growing expectations of a global economic recovery.

Signs of a global economic pickup will no doubt help brighten prospects for the Japanese economy as well.

When economic recovery appears on the horizon in Japan, the selling pressure on the yen will ease.