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Is Japan Creating a Yen Bloc in East Asia and the Pacific?

  • Jeffrey A. Frankel

This paper reaches seven conclusions regarding the Yen Bloc that Japan is reputed to be forming in Pacific Asia. (1) Gravity-model estimates of bilateral trade show that the level of trade in East Asia is biased intra-regionally, as it is within the European Community and within the Western Hemisphere, to a greater extent than can be explained naturally by distance. One might call these three regions 'super-natural' blocs, in contrast to Krugman's "natural" trade blocs. (2) There is no evidence of a special Japan effect. (3) Once one properly accounts for rapid growth in Asia, the statistics do not bear out a trend toward intra-regional bias of trade flows. (4) The world's strongest trade grouping is the one that includes the U.S. and Canada with the Asian/Pacific countries, i.e., APEC. (5) There is a bit more evidence of rising Japanese influence in East Asia's financial markets. Tokyo appears to have acquired significant influence over interest rates in a few Asian countries, though overall its influence is as yet no greater than that of New York. (6) Some of Japan's financial and monetary influence takes place through a growing role for the yen, at the expense of the dollar, The yen has become relatively more important in exchange rate policies and invoicing of trade and finance in the region. (7) But this trend is less the outcome of Japanese policy-makers' wishes, than of pressure from the U.S. government to internationalize the yen.

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File URL: http://www.nber.org/papers/w4050.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4050.

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Date of creation: Apr 1992
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Publication status: published as Garnaut, R. and P. Drysdale, eds. 1994. Asia Pacific Regionalism: Readings in International Economic Relations, Harper, Australia, pp. 227-249
Handle: RePEc:nbr:nberwo:4050
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  1. Tom Jackson, 1991. "A game model of ASEAN trade liberalization," Open Economies Review, Springer, vol. 2(3), pages 237-254, October.
  2. Takatoshi Ito, 1984. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," NBER Working Papers 1493, National Bureau of Economic Research, Inc.
  3. Marcus Noland, 1997. "Public Policy, Private Preferences, And The Japanese Trade Pattern," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 259-266, May.
  4. Takatoshi Ito, 1983. "Capital Controls and Covered Interest Parity," NBER Working Papers 1187, National Bureau of Economic Research, Inc.
  5. Gary R. Saxonhouse, 1989. "Differentiated Products, Economies of Scale, and Access to the Japanese Market," NBER Chapters, in: Trade Policies for International Competitiveness, pages 145-184 National Bureau of Economic Research, Inc.
  6. Glick, Reuven & Hutchison, Michael, 1990. "Financial liberalization in the Pacific Basin: Implications for real interest rate linkages," Journal of the Japanese and International Economies, Elsevier, vol. 4(1), pages 36-48, March.
  7. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  8. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
  9. Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework (Détermination du taux d'intérêt dans les pays en développement: cadre théorique) (Determinación de los tipos de inter," IMF Staff Papers, Palgrave Macmillan, vol. 32(3), pages 377-403, September.
  10. Hamid Faruqee, 1991. "Dynamic Capital Mobility in Pacific Basin Developing Countries; Estimation and Policy Implications," IMF Working Papers 91/115, International Monetary Fund.
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