By: Mike Campbell
The once mighty Greenback has dropped to its lowest value against the Japanese currency since July 1995. In yesterday’s trading, 1$ would buy you just 86.5 Yen. The relative strength of the Japanese currency against the Dollar is not a reflection of the performance of the two economies. If anything, the Japanese economy is perhaps in worse shape than the US with record post-war unemployment; a near zero central bank interest rate; price deflation and poor consumer and business confidence.
A high Yen harms the Japanese export market which is critical to the fortunes of the world’s second largest economy. The slump of the US Dollar has more to do with a partial loss of confidence in it as the world’s reserve economy. This is also behind the current record high prices for gold which is seen as a viable, risk averse, alternative to Dollar holdings in uncertain times.
At some point in the cycle, somebody will decide that the Dollar has become too cheap to resist and will take a large position in it against the day when the US economy finally turns the corner, or bottoms out, returning to proper growth as befits the world’s largest economy. At that point, the value of the Dollar will climb and a lot of money will be made. US Federal Reserve Chairman, Ben Bernanke, has reiterated the US position that they favour a strong Dollar, but action to support this policy is not to be seen. A cheaper Dollar makes US exports more affordable in a recession torn global economy and puts some pressure on US imports which will help the US trade balance – it has a minimal effect on day-to-day life for the average American who pays for their goods in Dollars; so it may not be an altogether bad thing for the US.
The US Dollar Slips To 14-Year Low Against The Japanese Yen
DailyForex.com