In the absence of fresh incentives in either direction, the dollar could remain locked within a range between 114 yen and 119 yen for some time.

The currency market is now looking for clues as to how the government intends to support stock prices.

Should the government fail to work out effective measures to halt the stock market slide, a broad "sell Japan" mentality might develop again in the marketplace.

The time has come for the government to signal that it intends to introduce a treasury stock system, tax reforms and other measures in an effort to entice investors.

It is interesting to note that the 120 yen level has emerged as a strong resistance line for the dollar.

Over the past 15 years, the dollar-yen rate has moved in an 80 yen range, roughly 40 yen either below or above the 120 yen line. When the exchange rate has moved more than 10 yen away from this 120 yen line in either direction, the central banks have often intervened.

Although it is unclear whether Japanese monetary authorities intend to keep the dollar from rising above the 120 yen line, the uptrend in the dollar's value could gain momentum if and when the U.S. unit climbs past this level.

Should Tokyo share prices remain in a deep slump, a crucial moment for the currency market could arrive some time between mid-February and March. The dollar could then soar to 123 yen or even 125 yen.