By: Dr. Mike Campbell
With further gloom provided by worse than expected US job figures which revealed that a further 95000 jobs were lost in September, it is no surprise that the Dollar is hitting new 15 year lows against the Yen.
The underlying reason is the weakness of the US economy and the fear that the recovery is rapidly loosing steam rather than any fundamental confidence in the world’s second largest economy. The Dollar is currently trading at 81.985 Yen and the trend line seems to be firmly negative.
The Japanese Prime Minister, Naoto Kan, is on record as saying that he wished to see and exchange rate of 105 Yen to the Dollar – at the time, this rate seemed to be on the low side, but this would now require an appreciation of 15% which seems out of the question at the moment.
The current level of the Dollar is well below the value at which the Bank of Japan made its first intercession, so speculation is rife that the Bank will take further action. However, although the initial reaction to the Bank’s intervention was strong, boosting the Dollar by about 3 Yen, it was only a matter of days until the rate had decayed back to where it stood before the intervention. It may be that the Bank of Japan will wait until the move would be sustained by economic factors; perhaps when the Q3 GDP figures are revealed.
The Dollar has regained ground against both the Euro and Sterling marginally, but this looks more like profit taking than any sustained trend at the moment. No fundamentals have emerged on either side of the Atlantic recently which would justify such a position.