Japan's exports, helped by the booming Chinese economy, have been rising at double-digit rates since January compared with a year earlier. Some months back, this helped fan hopes that Japan had finally entered a period of sustainable growth. But some recent statistics - including a dip in quarterly factory output and a further decline in retail sales - have disappointed the hopeful. The US economy, after staging a strong recovery, is not growing as robustly as expected while in Asia China's boom may be losing its impetus following the central bank's recent decision to raise interest rates. Japan's earlier efforts to halt the yen's appreciation and take advantage of the export surge have in all likelihood failed. Following the US presidential election, it is becoming clearer that a major currency realignment could take place in the near future.

An increase in exports expands production. In Japan, when exports are paid for in dollars, the proceeds must be converted back into yen. When this conversion takes place, the yen naturally appreciates due to the yen-dollar imbalance, as Japan's dollar holdings exceed America's yen holdings. As Japan's economic growth strategy calls for export expansion, the prospect of yen appreciation has been offset by the government's deliberate policy of buying US treasuries and, if necessary, intervening in currency markets.