TOKYO -- The U.S. dollar dropped through the psychologically important 125-yen level virtually without resistance in trading here yesterday, and traders said the bottom was not in sight.
Closing at 124.4 yen, down 1.40 from Wednesday's close and the lowest since January 4, 1989, the dollar dropped for the 13th straight trading day.
The dollar strengthened in early trading this morning.
"The current movements of the yen-dollar are occurring within previous ranges, but the yen should not enter uncharted territory," said an official, who asked not to be identified.
The close brought the dollar within 4 yen of its previous record-low, 120.45, set nearly two years ago. Traders said new record lows are likely, possibly next week.
Powered mainly by mounting evidence of a recession in the United States and interrupted only briefly when traders have turned to dollars for refuge during Persian Gulf war scares, the string of declines has stripped nearly 10 percent from the dollar's value against the yen in less than three weeks and more than 22 percent from its summer peak.
In recent weeks, the yen's rising strength against the dollar has fueled rallies on the deeply troubled Tokyo Stock Exchange, where the 225-issue Nikkei index advanced past 24,000 yen yesterday for its fourth consecutive gain and the seventh in the last nine days of trading.
The index surged 507.72 yen, a 2.13 percent gain, on trading volume of about 700,000 shares, by far the strongest since since midsummer. It closed yesterday at 24,367.08.
On the stock market, the 225-issue Nikkei stock average rose 263.46 points, or 0.01 percent, to 24,630.54 points within the first hour of morning trading today.
The Nikkei briefly dropped below 20,000 yen late last month and had seemed unable to stem its decline until the yen began its latest round of rises against the dollar.
The Tokyo exchange's recovery attempts, after nine months that nearly cut the Nikkei to half of its January peak, have relied on highly selective stocks and frequent government and institutional intervention to amplify the effects of good news from the country's currency and bond markets.
Yesterday's gains, like most of this month's, were led by companies positioned to cash in on the continuing rise in spending by Japan's domestic consumers.
Many foreign analysts remain skeptical of the Tokyo exchange's ability to sustain its current rally, not only because of the lengthening gulf crisis but also because tightening liquidity worldwide may cut into corporate investment, which has accounted for an estimated one-fourth of the growth in Japan's gross national product.
"Where's the top for this rally?" a European bank analyst said yesterday. "Maybe 25,000 yen? Maybe 35,000, tops? When it tops out, there's still a lot of room for another loss of 50 percent, but from a much lower high. That would put the next bottom somewhere in the 13,000 to 17,000 range. Who ever thought of that a year ago?"
For more than a week, attention in Japan has focused on the relentless plunge of the dollar and the relative equanimity with which Japanese and U.S. authorities have been accepting it, compared with their repeated but futile efforts to slow its decline from much higher levels only a few months earlier.
Tuesday, Treasury Secretary Nicholas F. Brady said he felt no urgency about the rapid decline, adding that a lower dollar would have the compensating advantage of making U.S. exports attractive, and imports less attractive, to U.S. consumers at a time when the domestic economy could use the boost.
Japanese news reports have quoted unidentified senior officials at the Ministry of Finance as similarly approving the dollar's decline, arguing that a stronger yen will reduce the inflationary pressure that high-priced imported oil is putting on Japan's economy.
Japanese and foreign news agencies quoted several Japanese currency traders as saying that the market seemed to be taking the officials' comments as a license to add speculative dollar sales to the pressures already pushing the dollar down.