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Weak Economy and Strong Currency: The Origins of the Strong Yen in the 1990s

  • Gunther Schnabl

During the 1990s the Japanese yen proved astonishingly strong despite the persisting recession. This paper tracks the origins of the high yen. It analyses the influence of interest rates, prices and foreign exchange policy on the yen-dollar exchange rate. It comes to the conclusion that real interest differentials can only explain short-term exchange rate changes. Since prices have been exerting their influence on the Japanese currency in the long run, the high yen is explained with deflation. The massive foreign exchange interventions of the 1990s were only able to stop the appreciation temporarily, if they were unsterilized, but they had no lasting effects. Der Yen ist in der japanischen Rezession der 90er Jahre überraschend stark geblieben. Der Aufsatz untersucht die Ursachen für den hohen Yen. Er analysiert den Einfluss von Zinsen, Preisen und Währungspolitik. Danach haben reale Zinsdifferenzen allenfalls einen kurzfristigen Einfluss auf den Wechselkurs. Langfristig ist das Preisniveau entscheidend, so dass der hohe Yen mit der Deflation der 90er Jahre erklärt werden kann. Die massiven Devisenmarktinterventionen der 90er Jahre konnten die Aufwertung nur vorübergehend aufhalten, wenn sie nicht sterilisiert wurden. Langfristig konnten sie jedoch die Aufwertung nicht verhindern.

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File URL: http://ejournals.duncker-humblot.de/doi/pdf/10.3790/vjh.70.4.489
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Article provided by DIW Berlin, German Institute for Economic Research in its journal Vierteljahrshefte zur Wirtschaftsforschung.

Volume (Year): 70 (2001)
Issue (Month): 4 ()
Pages: 489-503

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Handle: RePEc:diw:diwvjh:70-40-4
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  2. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
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  12. MacDonald, Ronald & Nagayasu, Jun, 1998. "On the Japanese Yen-U.S. Dollar Exchange Rate: A Structural Econometric Model Based on Real Interest Differentials," Journal of the Japanese and International Economies, Elsevier, vol. 12(1), pages 75-102, March.
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  16. Menon, Jayant, 1995. "The Relationship between the Law of One Price and Exchange Rate Pass-through," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 48(4), pages 551-568.
  17. Kenichi Ohno, 1990. "Exchange Rate Fluctuations, Pass-Through, and Market Share," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 294-310, June.
  18. Hung, Wansing & Kim, Yoonbai & Ohno, Kenichi, 1993. "Pricing exports: a cross-country study," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 3-28, February.
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