Reforming the International Monetary and Financial System
Chapter

Comments: Foreign Exchange Origins of Japan’s Liquidity Trap

Editor(s):
Alexander Swoboda, and Peter Kenen
Published Date:
December 2000
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Excessive exchange rate fluctuations among the major currencies is the central concern of the paper by Benoît Cœuré and Jean Pisani-Ferry. Much of the motivation for the European Monetary Union was to eliminate, once and for all, such fluctuations among continental European currencies. And Cœuré and Pisani- Ferry discuss, in a comprehensive and even-handed way, the case for containing fluctuations among the remaining major currencies—the dollar, the euro, and the yen—whether taking a rules-based approach favored by the continental Europeans, or taking the more discretionary approach favored by the United States.

Since the Plaza-Louvre accords of the mid-1980s, the G-7 countries have occasionally taken concerted action, and quite successful action when it was concerted (Catte, Galli, and Rebechini, 1992; Dominguez and Frankel, 1993), to stop major cyclical “wrong-way” fluctuations in the dollar’s real exchange rate against the yen or continental European currencies. Ironing out cyclical fluctuations in real exchange rates is all well and good, and this Plaza-Louvretype international cooperation would be best to continue in the future.

However, there has existed—and still exists—a major, and largely unrecognized, lacuna in these international accords—the upward drift of the dollar value of the yen in nominal terms since the early 1970s. The great nominal appreciation of the yen, and more importantly, the fear that it will continue, has created relative deflation in Japan and, eventually in the late 1990s, an externally imposed liquidity trap for Japanese nominal interest rates. But instead of being a multicountry problem warranting concerted G-7 intervention in the Plaza-Louvre tradition, as reviewed by Cœuré and Pisani-Ferry, this upward drift in the yen is mainly a more narrow bilateral problem between Japan and the United States.

Japan’s Dilemma

The inability to diagnose why Japan has fallen into an unremitting economic slump, where private investment and consumption languish despite massive government fiscal stimuli, has become the great failure of modern macroeconomics. Because there is no consensus on what to do, Japanese political leaders, and senior officials in the ministry of finance, Bank of Japan, and elsewhere, can hardly be faulted for their failure to take “resolute action” to end the slump. Even Paul Krugman (1999) is depressed. With the economy already swimming in excess liquidity and nominal interest rates close to zero, he cannot convince Japanese officials to greatly expand today’s monetary base. Perhaps the officials are right to be skeptical.

Is there an alternative way to quash the deflationary expectations now gripping the economy? The trick is to credibly stabilize the future price level (in people’s minds) without further massive increases in the current monetary base—increases that would have to be sharply reversed if the deflationary psychology was successfully broken and nominal interest rates rose to normal levels. The appropriate way to anchor the future Japanese price level for tradable goods and services (as approximated by the wholesale price index [WPI]) is by a joint commitment by the U.S. and Japanese governments to stabilize the dollar value of the yen in the long run, that is, 10, 20, or 30 years hence.

Why is establishing a long-term benchmark for the nominal yen-dollar exchange rate by both governments necessary for anchoring Japan’s price level in the future? Because pressure from the United States to appreciate the yen from ¥360 to the dollar in 1971 to just ¥80 in 1995 is the historical origin of Japan’s deflationary psychology today.1 Although, in 1999, the yen has come down to “just” ¥120 to the dollar, close to its current purchasing power parity (PPP) rate, the unbalanced political-economic interaction between the two countries instills fear that U.S. mercantile pressure will return, and that the yen will be higher (and the Japanese price level will be lower) in the decades to come.

Not until 1978, however, was the expectation of an ever-higher yen sufficiently strong to drive Japanese nominal (but not real) interest rates persistently below those in the United States (Figure 1). This was not a problem for the Japanese as long as U.S. nominal interest rates remained high because of inflationary expectations. But when the U.S. Federal Reserve convincingly stabilized the U.S. price level by the mid-1990s and U.S. interest rates came down, Japanese interest rates were driven toward zero. Thus has the liquidity trap in Japan been externally imposed—as an incidental, rather than deliberate, outcome of U.S. policies.

Figure 1.Yen/Dollar Exchange Rate and Long-Term Interest Rates

Source: Constructed from International Financial Statistics, IMF.

The long history of this mercantile interaction between the two countries, and the United States’ concern to get the yen up, has been analyzed elsewhere (McKinnon and Ohno, 1997 and 2000). Taking this long-term expectation as given, I focus here on Japan’s current monetary dilemma. The Bank of Japan cannot use the ordinary instruments of monetary policy to reflate the economy. Nominal interest rates on yen assets cannot be reduced below zero, nor can the present “equilibrium” value of the yen be significantly depreciated in the face of Japan’s large trade surplus. Let us discuss each in turn.

Liquidity Trap and the Domestic Bond Market

In its most general sense, a “liquidity trap” is a situation where the central bank can expand the monetary base indefinitely without affecting any important prices in the economy, or relaxing some significant liquidity constraint, that would increase aggregate demand. Since 1995, the Bank of Japan has been expanding the monetary base faster than nominal GNP. But, at the same time, commercial bank credit has risen much more slowly—and in 1998-99 fell in absolute terms (Figure 2).

Figure 2.Japan: Money and Credit Growth

(Change over 12 months, in percent)

Sources: Bank of Japan and International Monetary Fund.

From the perspective of the domestic financial markets, Keynes (1936) identified a low-interest-rate trap where nominal interest rates are bounded from below by zero. As long as individuals may hold non-interest-bearing cash balances, and commercial banks may hold excess reserves at zero interest with the central bank, then open-market interest rates cannot be forced below zero. After 1995, the interbank overnight call rate among Japanese commercial banks was about 0.5 percent, and Figure 3 shows that this has fallen to effectively zero in 1999. Figure 3 also shows that the more volatile three-month certificate of deposit (CD) rate has fallen to 0.1 percent in 1999. Household purchases of safe deposit boxes for surplus cash are booming, and excess reserves of commercial banks are building up.

Figure 3.Japanese Short-Term Interest Rates

(In percent)

Source: Bank of England.

How does this affect Japan’s seemingly unending banking crisis? When nominal interest rates are compressed toward zero, lending margins for private commercial banks to good credit risks become unprofitable. The prime loan rate in Tokyo and Osaka has been forced down to just 1.5 percent. The reluctance of commercial banks to lend at low interest spreads further dampens aggregate demand, and banks’ low profits on new lending make them unable to recapitalize themselves. Indeed, low profitability in commercial lending has led a desperate government to nationalize much of the flow of financial intermediation—public trust funds based on the huge postal saving system and the central bank itself are now lending directly to private trade and industry.

Even so, because of the deflationary psychology gripping the economy, which anticipates ongoing declines in wholesale prices and land values, “real” rates of interest remain too high to stimulate aggregate demand. Indeed, real interest rates—suitably risk adjusted—in Japan cannot be very different from those prevailing in the much more buoyant U.S. economy without provoking massive capital flight.

In the Great Depression, Keynes (1936) was more concerned with why long-term nominal interest rates might be stuck significantly above zero—even though short rates were nearly zero, and there appeared to be excess liquidity. In June 1999, the volatile interest rate on benchmark 10-year Japanese government bonds (JGBs) was just 1.6 percent—while longer-term rates remained about 2 percent. But properly risk adjusted, Japanese long rates are still close to “zero.” As nominal interest rates on long-term bonds become low, their market prices become extremely sensitive to tiny changes in open-market interest rates. Because of this price volatility, the perceived riskiness of holding them rises. In addition, Keynes also believed that, at very low interest rates bounded from below by zero, people expect that bond prices are more likely to fall than rise, that is, that interest rates will rise in the future. (In Japan, the open-market risk premium on JGBs has been somewhat suppressed when huge government trust funds have been the dominant buyers of new issues. See Figure 4.)

Figure 4.Trust Fund Bureau JGB Purchases and JGB Bond Yield

Source: Bank of England.

The upshot of this reluctance to hold long-term bonds is twofold: a substantial risk premium gets built into long-term interest rates and what Keynes dubbed the “speculative demand for money” becomes indefinitely high. Any new injections of base money by the central bank are simply absorbed by this speculative demand with little or no effect on short- or long-term interest rates: the so-called liquidity trap.

Liquidity Trap with International Financial Arbitrage

In 1936, when Keynes wrote his General Theory of Employment, Interest, and Money, he modeled the economy as if it were financially closed to the rest of the world—not a bad simplification in view of the breakdown of world trade and the proliferation of exchange controls in the 1930s. In 1999, however, Japan is an open economy in an industrial world without exchange controls. If Japanese households, some business firms, and banks are “swimming in excess liquidity” with little or no nominal yield, why not pile into high-yield assets denominated in foreign exchange? For example, a Japanese saver could get more than 4 percent on short-term dollar deposits in New York or San Francisco, and about 5.6 percent on 10-year U.S. treasury bonds, which show less price risk in dollars than the price risk in yen of holding 10-year JGBs at 1.6 percent.

It is true that holding assets denominated in foreign currency incurs exchange risk. But unless Japanese savers felt strongly that the yen was likely to be higher in the future than it is today, they could not be persuaded to accept persistently much lower nominal yields on yen assets in comparison with dollar assets. Figure 1 shows that, for more than 20 years, they have felt this way. Since 1978, the nominal yields on 10-year JGBs have averaged about 4 percentage points less than the counterpart yields on 10-year U.S. treasuries. And, the great rise in the yen since 1971, from ¥360 to the dollar to about ¥120 in 1999, has, coincidentally, averaged about 4 percent a year—albeit with great volatility around that trend (Figure 1). Correspondingly, Figure 5 shows that, since the early 1970s, Japan’s WPI has fallen relative to America’s, but rather more smoothly.

Figure 5.Price Level of Tradable Goods (WPI)

(1960:Q1 = 100)

Source: Each graph is taken from line 63 of IMF, International Financial Statistics, CD-ROM, March 1999. In 1985, the U.S. WPI was merged into a series on the U.S. producer price index (PPI).

To understand more fully why a liquidity trap is sustainable in an open economy, the meaning of the “speculative” demand for money can be expanded. Beyond the ordinary transactions and precautionary demands for money, people hold speculative cash balances in anticipation of two events whose precise timing is uncertain: (1) domestic bond prices could suddenly fall (domestic interest rates rise) and thus present a better buying opportunity—the Keynesian case; and (2) the domestic currency could ratchet up in the foreign exchanges and present a better opportunity for buying bonds in foreign currency.

Even when the current dollar value of the yen is not appreciating, the possibility of upward ratchets in the dollar value of the yen further induces Japanese households and firms to hold large speculative domestic cash balances. In effect, Keynes’s speculative demand for money is augmented. Figure 1 shows the yens upward ratchets in 1971–73, 1977–78, 1985–87, and 1992–95. But sudden upward movements can also occur more quickly. On October 6, 1998, as Cœuré and Pisani-Ferry note, the yen ratcheted up from ¥135 to ¥115 to the dollar in the span of a few hours.

Consider the foreign investment decision the other way around. When the spot exchange rate seemed to be stable, suppose a Japanese household invests in high-yield foreign exchange assets. Then, if the yen suddenly rises, that household would suffer a capital loss measured in yen. In the liquidity trap with these exchange rate expectations, therefore, the spot value of yen need not depreciate when the Bank of Japan vigorously increases the monetary base. People just absorb the excess cash rather than invest in foreign or domestic bonds.

As Japanese long-term nominal interest rates moved very low in the late 1990s, Japanese bond prices became exceedingly volatile. This increased volatility could well have increased the risk premium demanded by foreign and domestic investors for holding yen bonds. Thus, Japanese real interest rates seen by domestic firms and households, i.e., the cost of capital, could well have moved higher than in the United States (McKinnon and Ohno, 2000).

Constraint on Yen Depreciation

Figure 6 shows a downward drift in the PPP rate since the mid-1970s as the Japanese WPI fell relative to the U.S. WPI. Since floating began in 1971, the more volatile market rate has seldom lined up with the PPP rate for very long. In mid-1999, however, the floating spot exchange rate of about ¥120 a dollar just happens to be close to the PPP rate between Japan and the United States. Table 1 provides various current estimates of PPP based on deflating the yen/dollar exchange rate with national wholesale price indices—usually taking some absolute measure of PPP as the base point. The median estimate for PPP in 1998-99 is in the neighborhood of ¥120-130 a dollar. By extension, through the operation of the world dollar standard, the yen is also close to PPP with much of the rest of the world—including Asian trading partners cum competitors such as China.

Figure 6.Actual and Purchasing Power Parity Yen/Dollar Exchange Rates

(Semi-log scale)

Source: Tradable PPP is based on the price survey of manufactured goods conducted by the Research Institute for International Price Mechanism (1993). For the fourth quarter of 1992, its estimate of the tradable PPP yen/dollar exchange rate was 150.5. This benchmark has been updated and backdated using the Japanese overall wholesale price index and the U.S. producer price index.

Table 1.PPP Estimates1 for 1998:Q4
Yen/DollarDeutsche mark/Dollar
Long-run averaging method (12-year moving average)1121.64
OECD price survey for machinery and equipment only21271.99
RIIPM price survey on manufactured goods31331.84
Economic Planning Agency price survey for consumer durables only41292.16
OECD price survey adjusted for tradability51552.37
Economic Big Mac index61211.82
Note: Actual exchange rates in 1998:Q4 were 120 yen per dollar and 1.66 deutsche mark per dollar.

When necessary, estimates are updated from base periods using the Cassel-Keynes method with wholesale price indices.

OECD, Purchasing Power Parities and Real Expenditures, “ESK Results,” 1990, Vol. 1 (1992).

Research Institute for International Price Mechanism, A Comparison of Competitiveness Among Japan, the United States, and Germany (1993, in Japanese).

Economic Planning Agency, Price Report, 1998.

Subject to upward biases, as the original data include net indirect taxes.

Based on The Economist, April 3, 1999. The magazine surveys the price of McDonald’s popular hamburger annually. Since the product contains both local labor and ingredients and imported materials, the results could be seen as a very limited and special PPP index.

Note: Actual exchange rates in 1998:Q4 were 120 yen per dollar and 1.66 deutsche mark per dollar.

When necessary, estimates are updated from base periods using the Cassel-Keynes method with wholesale price indices.

OECD, Purchasing Power Parities and Real Expenditures, “ESK Results,” 1990, Vol. 1 (1992).

Research Institute for International Price Mechanism, A Comparison of Competitiveness Among Japan, the United States, and Germany (1993, in Japanese).

Economic Planning Agency, Price Report, 1998.

Subject to upward biases, as the original data include net indirect taxes.

Based on The Economist, April 3, 1999. The magazine surveys the price of McDonald’s popular hamburger annually. Since the product contains both local labor and ingredients and imported materials, the results could be seen as a very limited and special PPP index.

I have argued that the spot yen need not naturally depreciate in the face of “excess” domestic liquidity as long as the future yen is expected to be (erratically) higher. However, there exists an additional political-economic constraint on how much the spot value of the yen could possibly be manipulated by the government to depreciate in real terms. Suppose, to stimulate the slumping (but very large) Japanese economy, unrestrained monetary expansionists aimed for a sharp depreciation of the yen below its current PPP rate. This would be wrong on several counts:

  • The domino effect. Other Asian currencies would be forced to depreciate (further). In particular, the finely balanced position of China, where the yuan/dollar rate has been stable for more than five years, would be undermined.
  • Protectionist responses from other industrial countries. Already in 1999, a major trade dispute is brewing over a surge in Japanese steel exports into the U.S. market.
  • The expectations effect. The fear of future yen appreciation could still remain and even be strengthened if expectations about the long-term value of the yen are little changed in the face of current yen depreciation.

Particularly in view of Japan’s large trade surplus, almost all protagonists in the current debate recognize the potential calamity if the yen were to depreciate sharply to well below its current PPP rate of about ¥120 to the dollar. Therefore, Japanese monetary policy is trapped in two important respects: nominal interest rates cannot be reduced further and neither can the spot value of the yen be significantly devalued in the foreign exchanges.

But it is the yen’s forward value, and not the spot value, which is too high. Thus, stabilizing the future (dollar) value of the yen can rid the economy of deflationary expectations and spring the liquidity trap to allow nominal interest rates on yen assets to rise to world levels—while real interest rates could fall as risk premiums are reduced (McKinnon and Ohno, 2000). The current spot rate, provided it remains close to PPP, need not (best not) change significantly.

Ending the Expectation of an Ever-Higher Yen

In McKinnon and Ohno (1997), Chapters 10 and 11 discuss policies that would unravel the syndrome of the ever-higher yen by rationalizing the mercantile- monetary interaction between Japan and the United States. At the risk of oversimplifying the many institutional aspects covered in the book, our proposed economic pact between the two countries boils down to two complementary sets of policies: (1) a commercial agreement limiting bilateral sanctions in trade disputes and ending (future) pressure from the United States to get the yen up, and (2) a monetary accord to stabilize the yen/dollar rate over the long term—the principle of virtual exchange rate stability.

A commercial agreement between the United States and Japan is a necessary condition for a credible exchange rate accord. Since 1971, numerous trade disputes—and threatened trade sanctions against Japan by the United States—have been ameliorated by having the yen rise in the foreign exchanges, as a means of reducing Japan’s competitiveness in U.S. markets. For example, the last great run-up of the yen from ¥100 to ¥80 to the dollar in the spring of 1995 was associated with an intense dispute over automobiles—the United States demanded numerical targets for imports of U.S. automobile components into the Japanese market. In such disputes, the U.S. Treasury Secretary and other U.S. officials often tried to “talk the yen up.” Their economic advisors thought (incorrectly) that this would reduce Japan’s current account surplus.

It is true that after April 1995, when the yen had become so grossly overvalued (Figure 6) as to threaten Japan’s economic collapse, U.S. policy shifted. The trade disputes were settled quietly without enforcing numerical import targets. The U.S. Federal Reserve intervened with the Bank of Japan several times in the summer of 1995 to drive the yen back down. This intervention was successful because it was joint and because it signaled a change in U.S. intentions. Subsequently, the Rubin-Summers regime at the U.S. Treasury has repeatedly declared its support for a strong dollar policy.

This remission from U.S. mercantile pressure, as the yen came down from ¥80 in April 1995 to ¥120 or so in 1999, was most welcome. Unfortunately, the markets continue to believe that this remission is only temporary. Why else would Japanese nominal interest rates remain 4 to 5 percentage points lower than their U.S. counterparts? In 1999, the strongly revealed market expectation was that the yen would rise in the future—an expectation so robust as to surprise even the author!

Once the problem is properly diagnosed, the solution for ridding the Japanese economy of its deflationary psychology is straightforward. The markets need a formal pact to provide long-term assurance that U.S. policy truly has changed permanently so that the future dollar value of the yen is likely to be no higher, and the Japanese (wholesale) price level no lower, than they are today. In accordance with the complementary policies (1) and (2) outlined above, the two governments would jointly announce a formal benchmark target, close to 1999’s PPP rate (the exact number is not too important) of say, ¥120, to the dollar. Then, when the yen/dollar rate moves sharply away from ¥120, the U.S. Federal Reserve and Bank of Japan would enter jointly to nudge it back toward ¥120. Without trying any hard short-term fix, the authorities would always be ready to nudge the rate toward its long-term benchmark in an unmistakably concerted fashion.2 In people’s minds, the yen’s long-term upward drift would cease.

National monetary policy must eventually support any such long-run exchange rate target. But, once the expectation of an ever-higher yen was successfully quashed, almost all the monetary adjustment would be in Japan. Little or no change in the Federal Reserve’s policy of stabilizing the U.S. price level—the independent anchor—would be necessary or desirable. Because the purpose of long-term stabilization of the exchange rate is to end deflationary pressure and spring the liquidity trap in Japan, that is where the main monetary adjustment would take place. What would the transition look like?

After the Trap Is Sprung: The Transition

An international pact to stabilize the yen/dollar exchange rate over the long term is politically difficult but technically straightforward. In contrast, once expectations begin to shift away from ongoing yen appreciation and deflation, successfully managing domestic Japanese monetary policy in the transition will be technically intricate. For analytical purposes, let us suppose deflationary expectations end suddenly—as with the exchange rate pact we propose. Then, without going into detail, what would happen?

  • Nominal Japanese interest rates rise, and real interest rates fall, to world levels as the wholesale price level stabilizes. Holders of long-term yen bonds take a beating.
  • New bank lending becomes profitable even though bank balance sheets remain a mess, but now a cleanup makes more sense. The banks can be “denationalized.”
  • Private investment increases as fear of a sudden yen appreciation and overvaluation is eliminated.
  • Private demand for new housing surges as the fear of ongoing decline in land values ends as the price level stabilizes.
  • The Bank of Japan may actually have to contract the monetary base to allow nominal interest rates to rise while keeping the exchange rate steady.

When the liquidity trap is sprung, nominal interest rates must increase—even though “real” rates come down toward U.S. levels as risk premiums in Japanese bond markets decline (McKinnon and Ohno, 2000). Private investment should be further stimulated when the fear of future upward ratchets in the yen declines, and the constraint on new bank lending diminishes as bank profit margins widen. House purchases should become more attractive for these reasons, and because potential home buyers see an end to the slide in property values.

Once the foreign exchange value of the yen and the future Japanese price level are securely anchored, whether the Bank of Japan should “tighten” or “ease” domestic monetary policy is, paradoxically, not clear. The possibly sharp increase in nominal interest rates would tend to reduce the demand for base money. If this effect dominates, the Bank of Japan would need to reduce the monetary base quickly to prevent capital outflows and a sharp depreciation of the yen below its agreed-upon dollar benchmark.

If, however, the economy recovers sufficiently fast and the banking system is quickly recommercialized, the demand for base money would increase on net balance. Reprivatization of bank lending should proceed naturally as commercial banks offer positive nominal interest rates and bid funds away from the postal saving system. Therefore, in the transition, the Bank of Japan must stand ready to either withdraw or inject base money into the system—always being guided by pressure in the foreign exchanges.

With this exchange rate anchor, and after a successful transition, the economy should achieve approximate price level stability as measured by Japan’s WPI—but not by the consumer price index (CPI). Figure 7 shows the fall in Japan’s WPI relative to its CPI. Reflecting the so-called Balassa-Samuelson effect, for a long time the price of services in Japan have been rising relative to goods prices. Thus, in the last decade, the Bank of Japan has been deceived by the relative stability in its CPI—while the WPI has fallen substantially and better reflects deflationary pressure (along with falling land prices) in the economy overall.

Figure 7.Japanese Consumers and Wholesale Prices Indices

(January 1985 = 100)

Source: International Monetary Fund.

Consequently, the WPI is a better (although not perfect) deflator for converting nominal into “real” interest rates (McKinnon, 1979). It is also more directly affected by the exchange rate. In the new steady state equilibrium with exchange stability, the system would settle down to higher growth in Japan’s CPI—say 2 or 3 percent a year—while the WPI remained approximately stable in the U.S. mode.

In contrast, an alternative proposal for springing the liquidity trap is to announce a policy of massive domestic monetary expansion to trigger “permanent” inflation and low or negative real interest rates—as per Krugman (1998). This alternative is both ambiguous and dangerous. It is ambiguous because a specific price index is not specified for the anchor. It is potentially dangerous because it would cause key variables to overshoot. The modus operandi of Krugman’s policy is to provoke a sharp discrete devaluation of the spot value of the yen away from its current PPP value.

Suppose Krugman’s high inflation target (distinct from the aiming for a stable WPI as sketched above) suddenly became credible, then nominal interest rates could jump too much; they would exceed those associated with stable price-level expectations. And inflation cannot be used to drive real rates low or negative—as Krugman wants. Aiming to reduce real interest rates in Japan persistently below those prevailing in the United States is simply not feasible, because it would provoke massive capital flight.

Finally, a sharp increase in today’s monetary base conflicts with the likely need for a modest contraction should stable price-level expectations be restored. Because the current deflationary crisis from the expectation of an ever-higher yen is rooted in Japan’s historically unbalanced mercantile relationship with the United States, the efficient solution is to end that expectation directly through a new international agreement to anchor the yen’s future value.

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2The necessary joint interventions by the U.S. Federal Reserve and the Bank of Japan (possibly joined in the future by the ECB) would not differ greatly from the more than 20 joint interventions that have occurred since the so-called Plaza-Louvre agreements of the mid-1980s. Until now, the character of these occasional interventions has been to act only when the market, rate moves sharply in the wrong direction, that is, away from PPP. The extreme run-up of the yen in the spring of 1995 elicited successful official interventions to contain it. Similarly, three years later, after the yen had sharply depreciated to ¥147 to the dollar in 1998, the U.S. Federal Reserve and Bank of Japan intervened jointly on June 17 to put a floor under it. Although infrequent, these Plaza- Louvre official interventions succeeded in ironing out wild “wrong-way” swings in major exchange rates as long as they were concerted and well signaled by the authorities (Dominguez and Frankel, 1993; Catte, Galli, and Rebechini, 1992). What has been missing from Plaza-Louvre-type policies has been any commitment to stop the long-term upward drift in the yen.

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