By: Dr. Mike Campbell
As we reported yesterday, the Yen has been appreciating against the Dollar recently.
In fact, the Dollar hit a fifteen year low against the Yen on Wednesday of 84.72 to the Dollar. The Japanese wouldn’t be drawn on the subject of market intervention; the last time they did so was in 2004. However, they intend to monitor the situation and will talk to other nations about what can be done (if anything) about fluctuations in the stock and currency markets.
The most recent decline in the value of the Dollar was triggered by a pronouncement by the US Federal Reserve that it would be buying more US government debt. This came hard on the heels of statements from the Fed that voiced their concern that the global economy was slowing. To illustrate the point, separate data showed the US trade deficit was the worst it has been for 20 months. US authorities expect the budget deficit to come in at about $1.42 trillion dollars. These figures caused all of the global markets to close lower yesterday and they were subdued today.
As one of the world’s leading exporting nations, Japan is at risk from a high Yen. The effect is two-fold; firstly, Japanese goods sold abroad from within the country and priced in Yen may become uncompetitive when the importer counts the cost of the higher Yen in their own currency and secondly, Japanese goods produced abroad and priced in the local currency bring fewer Yen when the profits are repatriated to the home country.