It’s been almost 5 months since the USDJPY exchange rate traded below 77.00 – and it seems that we are now back to those levels.

And, it’s no surprise.

The last time this happened, currency markets were in a tizzy regarding Japan’s economic situation – as a result of a possible nuclear meltdown.  This time, it’s a US economic downgrade that is helping demand for the Japanese yen.

Economic growth has been questionable since the beginning of the year.  Although estimates were for a healthy 2-3% rate of growth, recent figures show a more dour picture.  According to US Commerce Department figures, the world’s largest economy is only expected to expand by a paltry 1.3%.  Built on poor consumer spending figures and weaker manufacturing activity, the gross domestic product figure was more than disappointing, it was downright pessimistic.  Manufacturing figures for July show that the US sector slowed considerably – printing a headline figure of 50.9, falling from a 54.8 index reading.  This sentiment is helping to fuel Japanese yen demand as global investors continue to be cautious when considering investments in the US.

And then there’s the US debt ceiling debate.

Politicians handling the difficult task of raising the US debt ceiling have also injected fear and uncertainty in the markets.  With both parties supporting their own agendas – and without compromise – it’s not hard to see why the journey to a resolution has been so rocky.  This has dealt the US dollar a major blow over the last couple of sessions as investors sought safe haven in other country’s currencies.  The trend has been exacerbated by speculation of an imminent US credit downgrade as deficit cuts in the proposed bill remain below credit agency minimums.

So, until a complete end – or a Presidential signing – takes place, expect USDJPY to remain at these levels for a little bit longer.

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