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TOKYO — It costs a U.S. servicemember more to live in Japan now than it did in June.

The Japanese yen has surged 6 percent against the dollar since last month, with much of the gain coming in the past two weeks.

The next few days may determine whether the yen’s strength continues in the short-term, economists say.

This week, hundreds of U.S. companies began releasing earnings reports that will give global investors a better idea of whether the U.S. economy is recovering.

If earnings are better than expected — like those of Goldman Sachs, which reported a record $3.4 billion second quarter profit on Tuesday — that could send the U.S. stock market up, and the Japanese stock market may follow.

That in turn means a stronger dollar versus the yen, said Takeshi Makita, senior economist at the Japan Research Institute.

"The recent trend has been that investors take risks when the economy is good, which weakens yen," Makita said. "But if the state of the economy is poor, people don’t invest or take risks, and this strengthens yen."

If corporate earnings don’t spur economic optimism in Japan, it’s possible that the yen could strengthen further, meaning more costly goods, but also a high cost-of-living adjustment for servicemembers.

However, the Japanese government doesn’t want a stronger yen, since it means goods like cars and electronics cost more in dollars for Western consumers.

The Bank of Japan could opt to intervene by selling yen for dollars, as it did in 2004. Selling billions of yen on the currency markets could rapidly devalue the currency.

However, interventions are not foolproof and might require coordination with other countries, said Yuji Kameoka, an economist at Daiwa Securities, a major Japanese investment firm.

Yen levels would probably have to strengthen beyond January’s levels of about 87 yen to the dollar before the government would consider the move.

"Basically, there won’t be any intervention for a while," Kameoka said.

Kameoka believes the yen will remain in the lower 90s as investors determine how long it will take for stock markets to mount a sustained rally.

Makita foresees a see-sawing yen rate until economic data can point the economy in a clear direction. He believes the worst has already passed.

There are a few signs — though they are not overwhelming — that support his belief. For instance, the Japanese government recently released data that showed rises in both Japanese consumer confidence and industrial output.

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Hana Kusumoto is a reporter/translator who has been covering local authorities in Japan since 2002. She was born in Nagoya, Japan, and lived in Australia and Illinois growing up. She holds a journalism degree from Boston University and previously worked for the Christian Science Monitor’s Tokyo bureau.
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