Revaluation of Japanese Yen

Topics: Foreign exchange market, United States dollar, Exchange rate Pages: 4 (1236 words) Published: October 23, 2010
Revaluation of Japanese Yen, a historical lesson to draw: analysis Recently some Japanese politicians have been busily engaged in activities here and there, with an intention to reach an agreement similar to the 1985 "Plaza Agreement", which resulted in forcing the Japanese yen to revalue, in order likewise to corner the Renminbi (RMB) yuan to revalue now.

Recently some Japanese politicians have been busily engaged in activities here and there, with an intention to reach an agreement similar to the 1985 "Plaza Agreement", which resulted in forcing the Japanese yen to revalue, in order likewise to corner the Renminbi (RMB) yuan to revalue now. However, we must ask, under what backdrop, and through whose hands the 1985 "Plaza Agreement" was reached? What did the forced revaluation of the yen bring to Japan? And why the Japanese government stuck tenaciously to its "low yen" policy, for which it has never hesitated to hurt its neighbors? The US forced Japanese yen to revalue

After the collapse of the Bretton Woods system in the 1970s, Japan began to adopt the managed floating exchange rates. By September 1985, when the "Plaza Agreement" was signed, the rates of yen against US dollars had risen from its original fixed lowest point 360:1 to 240: 1. But the big rise didn't satisfy the American government, as it believed that it was just the extremely low value of yen, which strengthened the competitiveness of Japanese products against the Americans and resulted in the huge trade deficit of America to Japan. The deficit, having appeared in the middle of the 1960s, had expanded and reached 33.08 billion US dollars by 1984, a figure 1.23 times that of America's export volume to Japan. Intending to solve the problem of "twin deficits" (financial deficit and trade deficit), the Reagan Administration in the second terms of office discussed the adjustment of current exchange rates by entrusting its finance minister Baker to call a meeting of G-5 finance ministers...
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