A History of Current Account Balances in Japan from the Perspectives of Savings and Investment

Theories on the determinants of current account balances are not immutable. While Japan's current account surplus was a major issue for international policy debates between the late 1960s and the 1980s, existing theories coexisted with a novel theory known as the savings and investment approach. The review on historical materials from the archives of policymakers, such as the Bank of Japan, and from international organisations, such as the International Monetary Fund, reveals that the early appearance of this theory in research documents could be traced back to the late 1970s, but the penetration of the notion took many years. The choices of the theory are linked to the choices of suggestions or requests of particular types of macroeconomic policies. We examine the development of Japan's current account balances between the mid-1950s and the mid-1980s using the savings and investment approach, which enables us to distinguish between structural and actual fluctuations. The estimated results indicate that the role of structural factors in the current account balance was strengthened during the second half of the 1960s and the first half of the 1970s. Then, in the 1980s, it began to increase rapidly again.