2009 Reports

The Japan-U.S. Exchange Rate, Productivity, and the Competitiveness of Japanese Industries

Dekle, Robert; Fukao, Kyoji

In September 1985, representatives of the U.S., Japan, Germany, the United
Kingdom, and France met at the Plaza Hotel in New York, to engineer a depreciation of
the dollar, to help eliminate the continuing trade deficits of the U.S. As a consequence of
these policies, by February 1986, the yen-dollar exchange rate approached 180, from
about 250 before the Plaza Accord. The yen continued to appreciate, reaching
120 in early 1988. There was another spurt of appreciation in early 1995, with the yen
momentarily touching below 90. Subsequently, the yen weakened to as much as 130,
although it has mostly been in the 110-120 range during the last decade, except for the
period after the fall of 2008, when the yen briefly touched below 90 again.

These trends
in the Japanese currency apply also in terms of the Nominal Effective Exchange Rate
(NEER), although in terms of the Real Effective Exchange Rate (REER), the yen
appreciation was more muted, with the REER back at pre-Plaza levels by early 2007.