Declining Japanese Yen and Inertia of the U.S. Dollar

         
Author Name OGAWA Eiji (Faculty Fellow, RIETI) / MUTO Makoto (Hitotsubashi University)
Creation Date/NO. March 2017 17-E-018
Research Project Exchange Rates and International Currency
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Abstract

The U.S. dollar has maintained its position as the key currency in the global economy even after the euro was introduced to some states of the European Union (EU) in 1999. This is evidence of inertia of the U.S. dollar as the key currency. Our previous study (Ogawa and Muto (2016)) conducted empirical analysis to investigate the effects of several events on the inertia of the U.S. dollar. This paper focuses on the effects of the introduction of the euro and the global financial crisis on the contribution of the Japanese yen to utility. The introduction of the euro significantly decreased the contribution of the Japanese yen to utility as well as that of the Swiss franc. It explains the finding that the introduction of the euro increased the contribution of the euro to utility while the contribution of the U.S. dollar to utility was unchanged. The contribution of the Japanese yen to utility has significantly decreased while the global financial crisis occurred. The Japanese yen has a declining trend in terms of its contribution to utility both before and after the introduction of the euro and the global financial crisis.