In currency trading this afternoon, markets valued the US dollar at just over 100 yen. The level was the highest that the US dollar has reached against the yen in four years. The last time the dollar was worth above 100 yen was in April of 2009, when the economic crisis seemed at its darkest point.
US Dollar Trading
On this morning’s aftermppm, the dollar traded at 100.46 yen, according to data accumulated by Reuters. The symbolic break in the value of the dollar will give fuel to a fire that has been slowly burning on Wall Street in 2013. The US dollar may be deflating relative to the world’s other major currencies.
At the end of last week, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. The chat spanned many different topics, Read More
Deflation has become one of the hottest topics among high profile investors as the Federal Reserve’s quantitative easing program appears to be failing to keep inflation close to its 2 percent target. That means the US dollar is becoming more expensive to trade with, which is bad for US companies and the US economy in general.
According to the most recent report from the Federal Reserve, inflation in the United States has fallen to its lowest level in more than three years. The current level is 1 percent, and the Fed’s own target is at 2 percent. With all of the powers it has at its disposal, the Fed doesn’t seem able to keep inflation up. That’s a major problem for the economy as a whole.
According to the Fed forecast, inflation is likely to remain under its target rate for some time to come, indicating that there is an inability to control the rate of inflation. That means that, as long as inflation remains higher in other parts of the world, the US dollar will be worth relatively more as time goes on.
The 100 yen to 1 dollar line is a symbolically important limit on the value of the US dollar. Right now, the Japanese government is putting its own experimental economic policy into action. Between that and the inability of the US QE policy to keep inflation at respectable levels, the exchange rates between the currencies seems headed in one direction.
If the Federal Reserve and other bodies can’t do anything to get deflation in control, the face of the US economy, and in particular the investment world, might change very rapidly. In a deflationary environment, the best assets to invest in are very different. If deflation sets in, investors are going to have to change many of their preconceptions.