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Is Yen too Low or is the Dollar too High?

By Grant de Graf

Bloomberg Buisnessweek reports:
China itself intervenes to limit gains by the yuan, drawing criticism from trading partners including the U.S.


This is not a new assertion. However, China has always criticized the U.S. for propping up the dollar, arguing that it is the dollar that should be allowed to weaken, and that blame on Chinese officials to keep the Yen low, is inappropriate. Why would a weaker dollar be such a bad thing?

Certainly with the large trade or current account deficit that the U.S. runs, it would seem like a lower dollar would be a natural progression and the course that should follow. For a start, U.S. manufacturers will enjoy a new advantage in being able to export goods at cheaper pricers and ultimately, as growth becomes export driven, this will also reduce the trade deficit. Problem solved.