Why is the yen so strong? Good question.

When the yen stood 112 to the dollar, I shot off my mouth–on television, no less–and boldly predicted that the yen was more likely to weaken than strengthen. The yen, oblivious to my big ideas, strengthened further, and now stands at about 104 to the greenback.

Why should we care? Because the stronger the yen is, the more purchasing power our Japanese tourists have when buying dollar priced items in the CNMI. The less yen it takes to buy a dollar, the cheaper our stuff looks.

So far so good, but the question arises: Will the yen stay this strong? (I seriously doubt it).

Which introduces another question: Why did the yen get to strong recently? (Good question. Answer: I dunno.)

The conventional wisdom being offered is that the yen is strong because investors are yanking their money out of the U.S. market and pouring it into Japan so they can ride the profitable wave of Japan’s economic recovery (recovery?). Maybe this is the case, but, if so, it’s not visible to the naked eye. I’m not eyeballing the stock market, it’s too insanely weird for me to place much analytical faith in, but bonds are a sane index of reality.

If people were running from U.S. markets, we would expect interest rates to rise, as money being pulled from bond markets would create an extra scarcity of loanable funds. And, yes, interest rates have gone up over the past few months, based largely on the Federal Reserve Bank pushing them up in order to stave off the inflation monster.

But I see no evidence of an actual spike in rates that coincides with the yens’ recent run up. Looking back a few weeks, to September 8, the yield on a 30-year U.S. government bond was 6.073 percent. Yesterday, it stood at 6.083 percent. Higher, yes, but not dramatically so. Without digging into a formal study of the matter, it wouldn’t seem like interest rates are sufficiently correlated with the yen’s dramatic rise in strength.

But, however we got here…well, here we are. So–what next? Early this week, financial geeks were craning their 14 * inch necks toward news dispatches from the Bank of Japan, anticipating a policy that would weaken the yen (in order to keep Japan’s exports competitively priced). Rotsa’ ruck, though: the BOJ made no such pronouncements, and the yen kept its strength.

I, for one, think it’s likely that the BOJ will eventually weaken the yen. Much of Japan’s so- called recovery is a false one, a reflection of massive government spending on public works projects. Which is nice, I guess–it gives voters jobs and influential companies juicy contracts– but it’s hardly a fundamental economic recovery.

Prices in Japan, meanwhile, are falling. Increasing the amount of yen in circulation–which would weaken the yen–would help stop the falling prices. And, to the mind of many economists, it would prime the wallets of consumers and might jump start the economy from the consumer spending side. I can’t help but think the BOJ will take another look at this matter.

A strong yen? This strong? I see it–but I’ll admit that I don’t believe it.