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

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  • Gunther Schnabl

Abstract

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.

Suggested Citation

  • Gunther Schnabl, 2001. "Weak Economy and Strong Currency: The Origins of the Strong Yen in the 1990s," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(4), pages 489-503.
  • Handle: RePEc:diw:diwvjh:70-40-4
    DOI: 10.3790/vjh.70.4.489
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    • F31 - International Economics - - International Finance - - - Foreign Exchange

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