Just a few weeks after the new year began, the U.S. dollar dropped to the 105 yen range for the first time in three years and four months, and also hit a new low of $1.28 against the euro.
The primary factor behind its weakness is the threat of terrorism and the huge exter- nal and budgetary deficits of the U.S. economy. Although the administration of President George W. Bush publicly continues to advocate a strong dollar, it is widely believed in Japan and Europe that Bush, with an eye toward capturing votes from export-oriented domestic industries, is in fact condoning a weaker dollar.
It's worth noting here that there is a perception gap between Japan and Europe on the one hand, and the United States on the other, concerning the dollar's exchange rate.