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Poli 243- April 8th Notes.docx
Poli 243- April 8th Notes.docx

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McGill University
Political Science
POLI 243
Mark Brawley

Poli 243 Lecture Notes Monday, April 8 2013 Japan and International Monetary Cooperation Explaining the policy choice - The system level o Japans post war economic strategy  Focusing on exports  Participant of GATT- low tariffs  U.S. encouraged Japan to have a lowered exchange rate  During the Bretton wood years, 1960s, beginning of the 1970’s helped Japan  Strong trade tie between Japan and U.S.  Access to American market o 1980’s  Trade surplus with the U.S. was large  U.S. in the early 1980’s struggling through the recession because of the exchange rate that was boosted up  People in Japan became upsets  Trade imbalance- losing job in the U.S because of slow interests  Buying all the goods from Japan, japan not buying from them  On the Japanese side, they like having a lowered exchange rate, but they don’t want the YEN to be used internationally or a medium of exchange  Weren’t trying to be international financial center  In Germany, if the Yen was used internationally, many would hold it outside the country, it would be harder for the central bank to manage the currency  Therefore they don’t want the yen to rise in value because of trade purposes and in the financial systems - Domestic Level o Several decades of where export dominated and assisted in growth of the economy  Employ a lot of people, buy input from lots of different parts of economy  Key success stories of Japan  Who is the state responding to?  Keep open trade relations with the U.S.  Low Yen  Predictable distribution of domestic interests  Trade popular in urban areas  Historic representation of agricultural interests  How seats in parliament are distributed o Key interests in farming – rural interests o Protection of agriculture o Japanese were resisting o Strong import interests and protection interest o Exporters recognized that the U.S. has options on the table in terms of what they could do  If you’re an exporter, and U.S. market is your key market, and you hear rumblings in the U.S., that they are unhappy with the trade relationship, you know who they are talking about o What do they do?  Discussion in Congress about different policy options  Surplus in trade compared to the U.S.  Auto workers are getting together in Washington to say that they need protection  Lobbying in Washington D.C.  Trade policy could be changing  Trade sanctions- specific to Japan’s products (big exporters) –automobile, machinery, small engines  Push for a changing monetary policy  Telling the President through legislation  Don’t want to see U.S. put exports into place  Japanese government preferred action on monetary policy  Spread impact out o Everyone hurts a little bit o Monetary policy suits many different actors within their domestic system, instead of a trade dispute, where they would not benefit or cannot fight with the U.S. on Bureaucratic Politics - Or individual level? - Bank of Japan’s preferences o In Canada or U.S., or West Germany institutions have been set up with a particular set of responsibilities of how they are operated and stress the political independence of the U.S. bank o The U.S Fed could raise interest rates, even when the city president didn’t like it  End of Jimmy Carter’s term- thinking of being re-elected, and didn’t want to see the economy go down, but couldn’t do anything about it  People who are in charge of the federal reserve, that have a term that lasts longer than the president’s term Explaining Japan’s cooperation - Impact of decisions made - Initially, Japanese leaders compromise - Let the dollar drop, and let the yen rise - Didn’t agree completely because the U.S. was asking the yen to rise a lot more than the Japanese wanted o Discussed the targets o The rate that they agreed was  Target rate Yen set for 210 to 1 (rate at time was 242 to 1)  Direction of the change and what the U.S. was asking for was a higher rise, while Japan wasn’t o Overshot: in February 1986, the rate hit 200 to 1 o Markets expected the yen to rise  The accords were made but the targets were unannounced  Can’t rise too quickly, kept gradual otherwise Exports would be unhappy o How policy is formulated and executed on the Japanese side  Money should grow as the economy grows o Japan is one of the places where legislation clearly said the bank of Japan answers to the ministry of finance  Want to see the value of their currency be high  What central bankers consider their core mission, get their respect from other central bankers  Rise in the value of the yen in the 1980’s o Bank of Japan isn’t independent  Actual legislation says that they have to answer to the ministry of finance  Ministry of finance have 2 concerns: o Their interests are the government’s budgets- what they have to be in their debt (interests) o The minister of finances in the cabinet  From the ruling party of the parliamentary system  Elected official- competitiveness of their party o Part of the idea of having central bank that is independent, is that they are independent from influence from particular sectors- don’t want to answer to groups that have self interests  In this arrangement, the central bank cannot be free from influence o Listening to everything that cabinet says  Ministry of finance wants to keep the yen low  Central bank wants to see yen rise in value  60’s and 70’s the ministry of finance is always winning, and the yen lows  In the 1980’s- pressure from the U.S., the ministry of finance changes  Ministry of finance has dominance on the monetary policy - Article- o Debates inside Bank of Japan whether value of yen should rise or not  Where priorities are  Systemic contest or exchange value of the Yen or the key target is the domestic situation?  Two different groups with different priorities o Arguing within the Bank of Japan o Wasn’t external i
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