Knowing the value of a dollar is never easy. But in global financial markets these days, the challenge is particularly daunting.

Consider: Over on this side of the Pacific, the greenback is lately out of favor. The dollar has tumbled more than 10 percent against the Japanese yen since the beginning of the year. This week the U.S. currency slipped so quickly relative to the yen that the Japanese government spent more than $5 billion in a largely futile effort to prop it up. By the end of Tokyo's trading day today, the dollar traded only a whisker higher than on Friday, when it sank to 101.25 yen, its poorest showing in four years.

But cross the Atlantic and the buck is all the rage. Measured alongside the euro, the common European currency launched in January, the dollar is testing record highs.

What's going on?

The quick answer is that the dollar isn't the issue. To hear many economists and foreign exchange traders tell it, the U.S. currency is almost an innocent bystander whose global standing has been buffeted by events in other markets.

In Japan, many economists argue, things are finally looking up. After eight lackluster years, the world's second-largest economy appears finally to be on the mend. As a result, foreign investors have come rushing back in search of bargains, dumping dollars and euros in exchange for yen to make their purchases.

In Europe, by contrast, the picture's less encouraging. Many analysts lament that, though it has not stumbled as badly as Japan during the past decade, the European economy remains tangled in structural problems--among them high labor costs and excess regulation. The euro's weakness relative to the dollar and the yen, some analysts contend, reflects a growing consensus among investors that the nations of the European Union will help correct these problems at a much slower rate than originally expected.

"Many people bought the euro with the view that these countries are coming together, there will be an industrial consolidation in Europe, there will be a United States of Europe," said Marco Pianelli, strategic analyst with Nomura International in London. "Some fund managers don't want to reach the end of the year holding an investment that has done so poorly."

Whatever its shifting fortunes in Japan and Europe, by one broader measure--the Federal Reserve's "trade-weighted" dollar index--the buck would seem to have as much bang as ever.

As its name suggests, the "trade-weighted" index weighs currencies of America's biggest trading partners--Japan, Canada, Mexico and Europe--more heavily than those of smaller economies. On a trade-weighted basis, the value of the dollar hasn't changed much in the last two years. And over the past decade--a period marked by wrenching financial crisis in Japan, devaluation in Mexico and Brazil, default in Russia and the spectacular collapse of one of the world's largest hedge funds--the trade-weighted dollar has steadily gained in value.

That may explain why U.S. Treasury Secretary Lawrence H. Summers has displayed little interest in joining forces with Tokyo in reversing the dollar's decline against the yen. On Monday, he told reporters in Washington that the Clinton administration's "policy with respect to the dollar is unchanged," according to Reuters. "A strong dollar is in the national interest," Summers said, repeating the Treasury's customary mantra on exchange rate questions.

Japanese officials want desperately to prevent further appreciation of the yen. A strong currency would hurt the Japanese economy in two ways: by pushing up the prices of Japanese exports, thereby making them less competitive, and by shrinking profits earned by Japanese companies overseas.

But Japanese officials acknowledge the difficulty of redirecting global currency markets without cooperation from the U.S. government.

This week's currency market operation was executed by officials at the Bank of Japan under the guidance of colleagues at the finance ministry. But analysts in Tokyo believe the central bank remains staunchly opposed to more radical measures, such as printing more yen notes, to halt the yen's advance.

A sudden collapse in Japanese share prices might prompt the Bank of Japan to reconsider that position. Japan's banks are huge shareholders, and a dramatic contraction in the value of their portfolios could provoke a second banking crisis.

The Japanese central bank added to the confusion this morning by releasing a formal statement declaring that it stood "prepared to promptly provide sufficient funds in order to maintain the stability of the short-term money market, taking account of the government's yen funding of foreign exchange intervention and any disruptive impact of excessive movements in the foreign exchange market on domestic financial transactions."

The Japanese media initially hailed the statement as evidence that the bank was ready to slow the yen's rise either with lower interest rates or by pumping more money into Japan's financial system. But currency traders reacted skeptically, and by afternoon many denounced the statement as empty rhetoric.

So far, however, Japan's Nikkei average of 225 stocks has shown considerable resilience despite the higher yen. That's partly due to enthusiastic buying by foreigners, who made net purchases of more than $6 billion in Japanese equities in the first three weeks of November. Direct foreign investment in the Japanese economy is substantial as well this year.

Foreign bulls say the yen rally hasn't deterred them from socking money into Japan because they are betting heavily on the emergence of a Japanese "new economy"--in other words, a restructured Japan Inc. led by information technology firms whose profits aren't directly affected by exchange rates.

Peter Morgan, economist at HSBC Securities Ltd. in Tokyo, argues that in addition to investment flowing into Japan, the recent reluctance of Japanese companies to send their money overseas has contributed to the yen's appreciation. Japanese insurance companies and trust banks were aggressive buyers of euro-denominated bonds when they were first issued. But with those bonds worth much less now in yen terms, many Japanese investment managers are determined to steer clear of exchange-rate risk, Morgan said.

Although the dollar's divergent fortunes in Japan and Europe may seem complicated, in one respect the trends are making it easier to think about exchange rates. Many analysts believe the world's three major currencies are on the verge of an unprecedented alignment: 100 yen to the dollar and one dollar to the euro.

In late New York trading today, a dollar bought 102.60 yen, up from 102.15 late Tuesday, and a euro bought $1.0087, down from $1.0092.

Staff writer Anne Swardson in Paris contributed to this report.

CAPTION: Money dealers trade at a foreign exchange market in Tokyo last week.


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