Currency is stronger when the economy growing

In a last few years, GBP and USD are the strongest currencies in the global market, and it is considered that those economies are on recovery.

On the other hand, particularly Japanese economy, it has been said strong currency prevent the recovery and weak JPY is better for the economy. Weak currency may help exporters to rise revenues in their local currency while importers suffer from cost rising in the local currency.
Weak currency could lead to excessive inflation. In order to control inflation, long term interest rate have to be pushed up.  However, it implies the lending cost become  more expensive and their credit is degraded.

In terms of credit, strong currency is generally good for the economy. But why some government prefer their currencies weaker? One fact is that weak currency makes their debt smaller. In economic zones where "borrowed" exceeds "borrowing", lower currency helps their debt be shrink.

Even if strong currency convinces healthy credit, it is still unclear that the economy is actually recovered and financially sustainable. Below tables shows economic indicators for US, UK, Japan and Australia.

(Blue indicates maximum number and Red indicates minimum.)

Short rate target: Target rate decided by central bank.
Long rate bench mark: 10 year government bond yield.

(Debt / GDP)
 The figure of Japan is 227.20%, which means government debt is more than twice of GDP. This figure is outstanding in developed countries. Even Greece currently struggling with their financial situation, the figure is 177.10%. According to Debt/ GDP, Japan is facing financially difficult situation though they have great industries such as auto industry.
 On the other hand, Australian figure is 28.60% which is one of the lowest levels of developed countries. However, Australian interest rates have sharply fallen for the last few years, and the economy is not growing as well as before because mining industry had been shrink. Australian government could borrow more due to such economic situation, helped by the lowered interest rate.

(Inflation, Interest rate and FX)
 Looking at Inflation y/y and interest rate target, Japanese figure only indicates the inflation is higher than short rate target and long rate bench mark. One reason of this figure is that increased consumer tax has driven the inflation. However, as the inflation is lower than interest rate benchmark, monetary policy is still eased to provide money into the market. The central bank should seek timing to tighten the policy in order to control inflation.
 On the other hand, US and UK figures indicate they are facing deflation, despite the record low interest rate. Since later 2014, crude oil price has fallen and it helped consumer price down. Their strong currencies also helped the price of import goods down, too. Both factors are good for them, and the deflation is unlikely considered as weak production.


Ref)
Trading economics
World Interest Rates - FX street
Investing.com


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