2009 Reports

International Financial Integration and Japanese Economic Performance

Lane, Philip R.

Since 1980, Japan has experienced a boom-bust-recovery cycle in its level of international financial integration that resembles the shifts in its domestic economic activity. Accordingly, we investigate the links between international financial integration and Japanese macroeconomic performance. In addition to formal tests of the impact of international financial integration, we explore the inter-relation between international financial integration and the behaviour of the yen. We pay special attention to the unusual behaviour of Japanese official reserves. Finally, we seek to evaluate the broad impact of external liberalisation on the Japanese financial system.