The yen appears likely to remain under downward pressure for some time.

The currency market is beginning to expect a pickup in Japanese investment in foreign securities after the start of the new fiscal year.

Japanese pension funds, individual investors and trust funds are expected to funnel more money into dollar-based investment vehicles.

Although key U.S. interest rates are now at historically low levels, they are still high enough to entice Japanese investors to switch to the dollar in search of higher returns.

Now that the U.S. economy has visibly bounced back, the gap in underlying economic fundamentals between Japan and the United States is also working in the dollar’s favor.

Inventory adjustment is well under way in Japan, but signs of solid economic recovery are still nowhere in sight.

U.S. manufacturers have also worked off stockpiles of unsold products, and a rise of some 5 percent in first-quarter gross domestic product at an annual rate is now widely seen as a foregone conclusion.

Indeed, the U.S. Institute of Supply Management’s Purchasing Managers Index, a gauge of manufacturing activity, has stayed above the break-even level of 50 for two months on end.

The index showed a pickup in new orders, offering evidence of steady economic recovery.

The Bank of Japan said early this week that its quarterly “tankan” survey found business sentiment among major manufacturers unchanged at minus 38 in the first quarter, leveling off for the first time in five quarters.

Large manufacturers now appear to be expecting business conditions to improve in the coming quarter, but the optimism is far from comparable with the upbeat sentiment prevailing at U.S. manufacturers.

Given the Tokyo stock market’s demoralized performance in recent weeks and worries about political uncertainty at home, a strong yen rebound appears unlikely in the near term.

Still, given the heightened tension in the Middle East and rising crude oil prices, an unchecked dollar rise also appears unlikely.

Worries remain that the U.S. may again face a high rate of inflation, a delay in business fixed investment and new terrorist attacks.

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