POLI 211 Lecture Notes - Lecture 4: Plaza Accord, Japanese Yen, Kiichi Miyazawa
17 May 2018
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Department
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Professor
Japan and International Monetary Cooperation: The Plaza and Louvre Accords
In the 1980s when japan decided to imply radical changes to monetary policy of Japan
Conflict between the U.S. and Japan
Historically the yen had been undervalued
Bretton Woods regime collapses in early 1970s, high domestic inflation before 1970s
U.S. monetary policy shifted to combat inflation by 1980, raise interest rates drastically to 20
percent, and continue rising the rates.
The higher dollar damaged American trade, ex. gasoline prices went high up, at some point
Japanese cars were popular, not American
As trade deficit rose, Japan became focal point for the trade problems from Japan particular
eause Japa does’t reall u athig fro U“, also ot uig us foods, agricultural
products
U.S. preferred change in monetary policy rather than a trade conflict, they had to convince
Aerias that the dollar is’t fallig,
American Actions
Talkig the dollar do to a soft ladig, if the drop inflations rates fast, people still wont
believe that it wont fall back again, but convince them that this is a new dollar. Bringing down
the target zoe of ehage rates, do’t let the dollar fall
A ploy? Or genuine bureaucratic politics? (Federal Reserve vs. Treasury)
Result: U.S. sought to coordinate exchange rate interventions, under floating exchange rates
The Accords
The Plaza Accord: September 1985
Finance Ministers from the G5: (U.S., Japan, Britain, West Germany, France), referres to the five
biggest financial resources of the IMF. Currencies of those countries mattered. Interest rates
issues, Us want to decrease dollar rates,
Coordination of domestic policies needed, using fiscal policies.
The Louvre Accord: February 1987, second meeting
G5 plus Canada
Japan agrees to a rise i e’s alue plus a doesti stimulus package
Eplaiig Japa’s Cooperation
The System-Level:
Japa’s post-war economic strategy — set in Cold War context
1980s — Trade balance with the U.S. causing friction, us said that they need tariffs against
Japanese products, as their products are being sold better than local. Started to cooperate with
japa, or ogress ould fid the solutio, hih ould’t e faorale Japaese
Potential yen-dollar rivalry also to be avoided,
Eplaiig Japa’s Cooperation
The Domestic-Level:
Decades of export-oriented growth shaped distribution of domestic interests in Japan. Japan
got great exports sectors, political power, agriculture protection.
U.S. trade policy would hurt specific sectors, they want tarrfis, but go for compromise
Japanese leaders compromise: target rate for yen at 210 to $1 (rate at time was 242 to $1)
February 1986 yen will rise further, and goes beyond the target that us set
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Japan and international monetary cooperation: the plaza and louvre accords. In the 1980s when japan decided to imply radical changes to monetary policy of japan. Bretton woods regime collapses in early 1970s, high domestic inflation before 1970s. U. s. monetary policy shifted to combat inflation by 1980, raise interest rates drastically to 20 percent, and continue rising the rates. The higher dollar damaged american trade, ex. gasoline prices went high up, at some point. As trade deficit rose, japan became focal point for the trade problems from japan particular (cid:271)e(cid:272)ause japa(cid:374) does(cid:374)"t reall(cid:455) (cid:271)u(cid:455) a(cid:374)(cid:455)thi(cid:374)g fro(cid:373) u , also (cid:374)ot (cid:271)u(cid:455)i(cid:374)g us foods, agricultural products. U. s. preferred change in monetary policy rather than a trade conflict, they had to convince. American actions (cid:862)talki(cid:374)g the dollar do(cid:449)(cid:374)(cid:863) to a (cid:862)soft la(cid:374)di(cid:374)g(cid:863), if the drop inflations rates fast, people still wont believe that it wont fall back again, but convince them that this is a new dollar.
