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Modern Currency Wars: The United States versus Japan

Trade and Migration

In 2013, through massive quantitative easing by the Bank of Japan (BOJ), the yen depreciated about 25 percent against the dollar and stoked fears of new currency war with return of Japan bashing. But this sharp depreciation simply restored purchasing power parity after the yen had been rising for three years. In June 2013, the PPP for the yen is about 100-103 yen per dollar. And over a longer perspective from 2007, quantitative easing by the BOJ has been similar to that carried out by the Fed itself, the Bank of England, and the European Central Bank. So the BOJ can only be faulted as a currency belligerent if the yen depreciates much more. This paper looks into the history and the impact of the gold standard and dollar standard. We then discuss in detail the case of Japan. If the United States and Japan can agree (if only implicitly) the right yen per dollar rate, it will make it easier China to keep its currency stable at the current rate—which is also close to PPP. So currency warfare among the big three in Asia can be avoided—no more “Japan bashing” or “China bashing”

479wp.pdf (614 KB)
Ronald McKinnon
Zhao Liu
Publication Date
August, 2013