July 23 (FNX News) - Continued weakness in Japanese stocks has been cited as the main factor today behind the sharp upward move in dollar/yen. The dollar is higher against most major currencies following weekend comments by U.S. Treasury Secretary Paul O'Neill reiterating the strong- dollar policy, said David Gilmore, partner with Foreign Exchange Analytics. "He also said something new, which is that the dollar is not too strong," added Gilmore. The dollar has firmed more against the yen than the major European currencies, however. The greenback is currently at 124.20 yen, compared to Friday's North American close of 123.02. "Japan had a weak report--something called the all-industries index--for May. It's a proxy for GDP," said Gilmore. "It was down 0.9%. And the Nikkei is down to its lowest levels since March of 1985. It was down over 2.5% last night. It's not looking good for Japan. So this recent rally in the yen is running out of steam." "They are saying that the weaker yen is a reaction to the drop in the Nikkei, which fell very heavily last night," said Margaret Kudarauskas, senior analyst with CurrencyNetwork.com. The Nikkei 225 stock average fell 298.76 points to close at a 16-year low of 11,609.63. Kudarauskas offered the view that further upside potential in the dollar/yen may be limited due to repatriation of Japanese funds. Presumably, Japanese investors would repatriate money from overseas in an attempt to shore up their books at home. "I'm not so sure that dollar/yen is going to continue to rally (on weak Japanese stocks), although its hard to tell," she said. Gilmore questioned whether significant repatriation has been going on, however. "Very little of it appeared this last February and March (ahead of the end of the Japanese fiscal year), when normally we see a lot of it. The bottom line is that Japan has already reduced its exposure overseas....The Japanese are not investing abroad."