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The Over-Valued Yen and the Low-Pressure Economy Repressed Productivity in Japan

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  • Koichi Hamada
  • Koji Nomura

Abstract

In the post-war economy of Japan, the high-pressure economy as defined by Okun and Yellen maintained its real exchange rate relatively low and kept the economy mildly inflationary. Not only did it encourage short-term employment but it also fostered a long-term productivity trend as measured by its total factor productivity (TFP). International pressure for a stronger yen after the Plaza Accord, coupled with the restrictive monetary policy of the Bank of Japan, created a large exchange rate gap and accordingly, the extreme Japan-U.S. output price gap, referred to as the price level index (PLI), in 1995. It further caused the squeeze of domestic wages and led to the deflationary pressure that plagued the Japanese economy for decades. In our opinion, the exchange rate also depressed domestic capital accumulation caused by the internationally low nominal rate of return on capital and that situation caused the TFP stagnation in Japan.

Suggested Citation

  • Koichi Hamada & Koji Nomura, 2023. "The Over-Valued Yen and the Low-Pressure Economy Repressed Productivity in Japan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(6), pages 1-1, June.
    • Handle: RePEc:ibn:ijefaa:v:15:y:2023:i:6:p:1
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    References listed on IDEAS

    as
    1. Arthur M. Okun, 1973. "Upward Mobility in a High-Pressure Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 207-262.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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