The yen-dollar relationship: a recent historical perspective
AbstractThis paper explores the interaction between exchange rate alignment and external balance for Japan and the United States. The analysis highlights the influence of current account developments on the yen-dollar exchange rate, as well as the reverse, and the interaction between the capital account and the exchange rate. We first sketch the broad outlines of the factors driving medium-run swings in the yen-dollar exchange rate over the floating rate period. After a brief consideration of the implications of financial liberalization for the yen-dollar exchange rate, the paper takes a more detailed look at the secular developments underlying movements in the yen-dollar relationship, tracing the evolution over the past two-and-a-half decades of some of the more salient structural features of the American and Japanese economies. Developments in each economy related to productivity, the composition and regional pattern of trade, real wages, the terms of trade and the savings-investment balance provide insights into the longer-run trends of the Japanese current account and associated pressures for yen appreciation over time. Finally, we weigh the relative contributions of changes in the exchange value of the yen and other economic factors in fostering more balanced trade between Japan and its major trading partners, including the United States. Evidence from the Multi-Country Model indicates that a 35 percent appreciation of the yen against the dollar over time will reduce Japan's surplus with the United States by $20 billion.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 288.
Date of creation: 1986
Date of revision:
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- Paul R. Krugman, 1985.
"Is the strong dollar sustainable?,"
Proceedings - Economic Policy Symposium - Jackson Hole,
Federal Reserve Bank of Kansas City, pages 103-155.
- Jeffrey A. Frankel & Kenneth A. Froot, 1986.
"Short-term and long-term expectations of the yen/dollar exchange rate: evidence from survey data,"
International Finance Discussion Papers
292, Board of Governors of the Federal Reserve System (U.S.).
- Frankel, Jeffrey A. & Froot, Kenneth A., 1987. "Short-term and long-term expectations of the yen/dollar exchange rate: Evidence from survey data," Journal of the Japanese and International Economies, Elsevier, vol. 1(3), pages 249-274, September.
- Jeffrey A. Frankel & Kenneth A. Froot, 1988. "Short-term and Long-Term Expectations of the Yen/Dollar Exchange Rate: Evidence from Survey Data," NBER Working Papers 2216, National Bureau of Economic Research, Inc.
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