As the dollar broke through this year's high of 135.45 yen on Monday, the market has turned increasingly confident about the outlook for the greenback, dealers said on Tuesday.

"It now appears we're more likely to see the dollar heading up towards 140 yen after breaking through this year's high (in New York on Monday)," said Hidenori Omori, senior manager of the forex markets section at Norinchukin Bank.

While fears over possible intervention by the Bank of Japan (BOJ) still exist, dealers said even central bank action is unlikely to alter the basic bullish trend of the US currency.

Ample evidence of the weakness of the Japanese economy and no clear signs of recovery have put pressure on the yields of Japanese government bonds, sending them down to record lows.

The yield onthe benchmark 182nd JGB fell to a record low of 1.240 per cent in Tokyo on Tuesday. In addition to domestic economic problems, widespread turmoil in Indonesia has recently depressed Asian currencies, including the yen, dealers said. On Tuesday, the dollar briefly came off its high against the yen due to comments from Indonesian president Suharto in a nationwide televised address.

Suharto promised new elections as soon as possible and said he would not stand in them.

"The market has tended to use the possible resignation of Suharto as a factor to buy the yen recently, but such buying should only betemporary," said Noriyuki Mizukami, head of treasury sales at National Westminster Bank (NatWest).

One senior dealer at a Japanese city bank said that even though the market bought back the yen after Suharto promised to step down, tension in Indonesia had not eased.

"There are still many uncertainties even if Suharto quits. I don't believe the market will continue buying the yen on Suharto's resignationalone," the dealer said.

Dealers said dollar-buying interest from the Japanese was still strong with many domestic institutional investors and private investors eager for a chance to buy high-yielding foreign investments. "There is substantial dollar buying demand from investors. Even if the dollar were to fall on possible BOJ intervention, I think the dollar should firmly be protected around the 132 to 133 yen area," NatWest's Mizukami said.

The BOJ spent a record $21.35 billion buying yen in April in an effort to bolster the yen, but dealers said they also remember that the impact of the intervention was limited.

On April 9 and 10 the BOJ sold dollars in New York and Tokyo, temporarily hammering down the dollar to as low as 127.40 yen. But the dollar has bounced back since then.

The BOJ only managed to buy a little time for the yen, the dealers said. The greenback stood at 135.75/80 yen by late Tokyo, compared with 136.22/32 yen in late Monday's New York trade."Many players are very careful aboutbuilding dollar longs amid fear over intervention," NatWest's Mizukami said.

"But the dollar is on an upward trend and the market is expected to buy gradually. The market is putting a target for the dollar to go up to about 141 yen within a month or two," he added.