251. The Syndrome of the Ever-Higher Yen, 1971-95: American Mercantile Pressure on Japanese Monetary Policy
- Author:
- Ronald McKinnon, Kazuko Shirono, and Kenichi Ohno
- Publication Date:
- 12-1996
- Content Type:
- Working Paper
- Institution:
- Walter H. Shorenstein Asia-Pacific Research Center
- Abstract:
- From 1971 through mid-1995, the yen continually appreciated against the U.S. dollar because the Japanese and American governments were caught in a mutual policy trap. Repeated threats of a trade war by the United States caused the yen to ratchet up in 1971-73, 1977-78, 1985-87, and 1993 to mid-1995. While temporarily ameliorating commercial tensions, these great appreciations imposed relative deflation on Japan without correcting the trade imbalance between the two countries. Although resisting sharp yen appreciations in the short run, the Bank of Japan validated this syndrome of the ever-higher yen by following a monetary policy that was deflationary relative to that established by the U.S. Federal Reserve System. The appreciating yen was a forcing variable in determining the Japanese price level. After 1985, this resulted in great macroeconomic instability in Japan--including two endaka fukyos (high-yen-induced recessions).
- Topic:
- Economics, International Political Economy, and International Trade and Finance
- Political Geography:
- United States, Japan, America, Israel, and East Asia