Question

what are the impact of plaza accord over hapanese currency and eventually on the economy

Answer 1

After the Louvre Agreement, the Plaza Agreement is regarded as one of the most important events in the post-WW-II period history of international finance. Witness accounts indicate that Japan has been more than a willing participant in the Plaza Treaty, ready to accept appreciation of yen. The Plaza Agreement's goal, dollar depreciation, was accomplished mush faster than expected, with fewer intervention amounts than expected. Hover, the yen appreciated to the level not being comfortable with Japan. In late 1986 the Japanese and US authorities agreed that the yen had appreciated enough. The Louvre Agreement was created to stabilize foreign exchange rates at

Interventions continued and the dollar weakening trend continued. G10 countries outside the G5 participated in efforts to sell the US dollar. The United States had sold USD 3.2 billion by the end of October; Japan had sold USD 3.0 billion; Germany, France and the United Kingdom combined to sell USD 2 billion, and the other G10 nations had sold USD 2 billion. In reality, Gyohten (2013) noted that the amount of G10 interventions, USD 10.2 billion, was much lower than the projected interventions needed to achieve the target of $18 billion depreciation.

During this time the currency appreciation occurred to Germany as well as to Japan. This era is characterized in that sense by a weakening of the dollar vis-à-vis yen and mark. The low interest rate was evident in the United States. Given the emergence of a concerted discount rate cut, the market decided that the consequences for the long-term decline in US interest were more pronounced than in other nations.

The Japanese government and the Bank of Japan were engaged in crisis management from 1997 to 2003. Priority in financial policy was given to limiting an immediate crisis from spreading to the rest of the economy, rehabilitating the stressed financial institutions, and strengthening the structure. Newly created, the Financial Supervisory Agency was formed to address an ongoing crisis and improve oversight of the financial sector. To mitigate bank risk, they structured the first and second rounds of capital injection to major banks. The financial crisis undermined public confidence in the Japanese economy.