By: Dr. Mike Campbell

The US Dollar hit fresh 15 year lows against the Japanese Yen in trading yesterday. It also showed gains against the Euro; pushing it to a nine year low, and Sterling. The reason for the strength of the Yen has nothing whatsoever to do with the performance of the Japanese economy, but is rather a reaction to concerns emerging from the USA which suggest that the economic recovery is faltering and we may be moving ever nearer to the dreaded double dip recession. At one point, the dollar dipped well below the 84 Yen mark and is currently trading at 84.42 to the Dollar. The trend has been steadily lower since early June.

The Euro shrugged off earlier concerns about the sovereign debt crisis to regain ground against the Greenback, recovering from the 1.20 mark to peak at 1.32 by the early part of August. The Euro has retreated against the Dollar (and Yen) recently, falling back to 1.265 currently.

The strength of the Yen is bound to hurt the competitiveness of Japanese exports, a fact that had already started to emerge when last months lack-lustre growth figures were released. The Japanese have indicated that they wanted to see the Yen trading at the 105 level against the Dollar – it is 25% lower than this target. Speculation continues to mount that the Japanese will be forced to intercede in the currency markets to devalue the Yen. Given that this is common knowledge, it is hard to understand why the Yen is being driven higher – unless speculators are taking some prodigious short-selling positions against the currency.

Concerns about the strength of the recovery around the world have sent stock markets around the world lower and led to a drop in the oil price.