Restless trading is continuing on the currency market, keeping the dollar on its recent roller-coaster ride.

The dollar has become increasingly sensitive to ups and downs in New York stock prices in general and the technology-heavy Nasdaq composite index in particular.

The New York stock market’s demoralized performance has frightened investors away, and the switch away from dollar-based assets, coupled with a pickup in a flow of funds into Japanese financial markets, has helped shore up the yen.

The yen can hardly be considered a safe haven, however.

Although investors are ditching New York stocks amid concern over U.S. economic prospects, the outlook for the Japanese economy and, hence, the Tokyo stock market, hinges largely on external demand, or the nation’s export earnings.

The government is expected to declare in its monthly economic report, due out Friday, that the economy has bottomed out.

One theory is that markets anticipate the future course of events, and if the anticipated economic pickup has been factored into share prices, the government report will come at a time when the market is obsessed with the new specter of hard times looming ahead.

A weak dollar linked to discouraging U.S. economic prospects is conceivable when the world economy picks up on its own.

The dollar would also give up ground against the yen when a domestic demand-driven economic recovery gathers momentum in Japan.

But neither scenario is conceivable for the foreseeable future.

High-priced activity on the Tokyo stock market, or optimism about Japanese economic prospects, can help shore up the yen’s value, but a strong yen always comes back to haunt the Tokyo market.

A careful analysis of market forces of supply and demand shows that Japanese investors have increased their holdings of foreign securities.

They have stepped up sales of dollars short against other currencies, including the yen.

Against this backdrop, there is speculation that the long-neglected yen is poised to gain ground.

It remains to be seen, however, whether the yen can move higher when the Nikkei average is threatening to fall below 11,000.

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