Many domestic investors are likely to invest in Japanese market how will this affect the A foreign exchange rate B Current a/c deficit in India

Over the past 30 years, there have been wildly fluctuating exchange rates between the Japanese yen and other currencies. The yen frequently fluctuated in price between 200 and 270 yen to the dollar in the early 1980s.

July 14, 2022 - 10:31 AM 241 views

Many domestic investors are likely to invest in Japanese market how will this affect the A foreign exchange rate

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© Many domestic investors are likely to invest in Japanese market how will this affect the A foreign exchange rate

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Over the past 30 years, there have been wildly fluctuating exchange rates between the Japanese yen and other currencies. The yen frequently fluctuated in price between 200 and 270 yen to the dollar in the early 1980s.

The Plaza Accord, which devalued the dollar, was a decision made in New York in September 1985 by the world's leading Western economies.

The Plaza Accord launched a yen strengthening trend that lasted for the following ten years and culminated with exchange rates that were almost 80 yen to the dollar.

That is a startling 184 percent increase in the value of the yen.

The strength of the yen was advantageous for Japanese travellers and businesses pursuing M&A in the US, but it was detrimental for Japanese exporters who wished to market their products to American consumers. In fact, this sudden increase in the value of the yen was one of the major causes of Japan's bubble economy's formation and eventual implosion in the late 1980s, which was followed by more than two decades of economic stagnation and price deflation.

The Japanese yen has experienced numerous abrupt fluctuations since 1995. Although none of them were as significant as the first decade after the Plaza Accord, they have all had a profound impact on the way Japanese politicians and businesspeople think and altered the fundamental framework of the nation's economy. In the middle of 2007, the yen started to increase once more, and by late 2011, it had broken through the 80 yen/dollar barrier.

With the election of a new administration (headed by Mr. Abe) and the appointment of a new central bank governor (Mr. Kuroda), both of whom pledged significant quantitative easing, this trend only recently started to reverse (and drastically so).

What effects has this volatility had on the Japanese economy, and how much of an impact does the exchange rate have?

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