Changes in the Global Financial Environment Surrounding Japan in the 21st Century: Foreign Exchange Policy and International Financial Coordination

Author Name IDO Kiyoto (Institute for International Economic Studies)
Creation Date/NO. October 2019 19-J-056
Research Project The Industrial Revitalization and the Role of Finance: The history of Japanese economic policies in the 1990s-2000s
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The twenty years from 1990 marked a momentous turning point for the economic and financial system of Japan. This transition is attributable to three shocks. The first shock was the bubble economy triggered by the measures taken in response to the appreciation of the yen triggered by the Plaza Accord, and the burst of the bubble. The second shock was Japan's financial deregulation and the financial crisis which resulted from the collapse of the bubble economy. And the third shock was the Asian currency crisis.

This paper focuses particularly on the changes in the international financial environment surrounding Japan and discusses with a historical approach the structural changes consequently demanded of Japan as well as its increased international responsibilities. Section 2 covers the changes in the post-Plaza Accord foreign exchange policy and recent discussions; Section 3 discusses the role played by Japan as well as the collaboration that developed among East Asian economies in overcoming the Asian currency crisis; and Section 4 explains the regional financial coordination in East Asia and the international financial coordination framework that has expanded from the G7 to the G20. And finally, the observations of the current status and challenges are included in conclusion.

The dawn of the 21st century was also a significant turning point for international finance. In 1999, the euro was introduced and the global economic leadership expanded from the G7 into the G20 with the development of emerging economies. The Asian currency crisis gave momentum for Asian economies, which had previously been destinations of Japan's exports, to become partners in supply chains and in the global financial system, changing the Japanese economy drastically. The G20, which initially began to address the international financial crisis and foreign exchange policies, is now discussing a wide range of subjects such as sustainable growth of the global economy and structural changes including aging, so Japan should play an increasingly important role.