Ok here is the basic idea of how currency value is determined. After the gold standard and the US dollar standard fell, the world entered an age of the floating currency exchange. This means that everyday a nations currency might be more valuable or less valuable than the day before. What determines the fluxuations? Buyers. Countries all over the world purchase other countries currencies, which determines the value. The American Dollar is strong because many many countries buy a whole lot of US Dollars. If investors and buyers decide to stop buying US Dollars, then the value of the US dollar would drop significantly. Now about your Japan question, some economists argue that a country will intentionally keep the exchange rate low so that buyers on the world market will not purchase the Yen for example. You would think that a weak national currency would indicate that this country is poor. Not always the case (China is a good exampe), the argument is that nations like Japan and China want their currency to be low in value so that other nations (like the US) will buy more Japanese and Chinese products imported. Think about it, if the US dollar is twice as strong as the Yen, than it can buy twice as many Japanse goods. If a computer costs 1,000 dollars in the US, but 1000 Yen in Japan, than you could buy two Japanese computers. make sense?
Source(s):
No formal sources used in this answer.I am a student of world economics and political science at the university of missouri-columbia
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