Random Walk

How far will the dollar ultimately fall against the Japanese yen? A chart published in the 60th anniversary directory of the Japanese Chamber of Commerce and Industry of New York tells a chilling story. For roughly 25 years during the age of Bretton Woods, the dollar was fixed at 360 yen. Since 1971, the dollar fell to 227 by 1980, a 37 per cent loss of value, then dropped to about 140 by 1990, another 38 per cent loss, and it now sits around 97, for another 30 per cent drop.

In fact, there was only one brief period when the dollar appreciated versus the yen. That was during the first term of the Reagan Administration, when hard-money Treasury Secretary Donald T. Regan pushed the dollar up from 180 to 270 in order to crush domestic inflation and signal a new global era of U.S. strength. This strong-dollar policy helped reduce interest rates and—together with Reagan’s supply-side tax cuts—set the stage for the longest peacetime economic expansion in history. Unfortunately, the next three Treasury men—Republicans James Baker and Nick Brady, and Democrat Lloyd Bentsen—depreciated the dollar.

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How far will the dollar ultimately fall against the Japanese yen? A chart published in the 60th anniversary directory of the Japanese Chamber of Commerce and Industry of New York tells a chilling story. For roughly 25 years during the age of Bretton Woods, the dollar was fixed at 360 yen. Since 1971, the dollar fell to 227 by 1980, a 37 per cent loss of value, then dropped to about 140 by 1990, another 38 per cent loss, and it now sits around 97, for another 30 per cent drop.

In fact, there was only one brief period when the dollar appreciated versus the yen. That was during the first term of the Reagan Administration, when hard-money Treasury Secretary Donald T. Regan pushed the dollar up from 180 to 270 in order to crush domestic inflation and signal a new global era of U.S. strength. This strong-dollar policy helped reduce interest rates and—together with Reagan’s supply-side tax cuts—set the stage for the longest peacetime economic expansion in history. Unfortunately, the next three Treasury men—Republicans James Baker and Nick Brady, and Democrat Lloyd Bentsen—depreciated the dollar.