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Japan's Imbalance of Payments

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  • Nikolas Müller-Plantenberg

Abstract

During the past three decades, Japan’s current account experienced five large swings. The yen appreciated considerably in periods when the current account boomed, and it depreciated whenever Japan’s external performance weakened. However, there has always been a certain lag in the adjustment of the exchange rate. This paper tries to explain these empirical regularities. It argues that as a result of the large movements of the current account, the flows of cash between Japan and ist trading partners fluctuated considerably, which in turn influenced the demand for yen relative to other currencies. To the extent that these cash flows were lagging the current account—primarily because of the Japanese lending abroad—the exchange rate’s response to external imbalances occurred with a delay. Based on the estimated maturity structure of Japan’s foreign lending, the paper constructs a measure of payment flows across Japanese borders, which is shown to follow the movements of the exchange rate very closely. The empirical findings raise doubts regarding the feasibility of proposals to depreciate the yen in order to help Japan out of its current economic crisis.

Suggested Citation

  • Nikolas Müller-Plantenberg, 2003. "Japan's Imbalance of Payments," CESifo Working Paper Series 1089, CESifo.
  • Handle: RePEc:ces:ceswps:_1089
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1089.pdf
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    References listed on IDEAS

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    Cited by:

    1. Müller-Plantenberg, Nikolas, 2012. "Balance of payments flows and exchange rate prediction in Japan," Working Papers in Economic Theory 2012/09, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    2. Müller-Plantenberg, Nikolas, 2012. "Boom-and-bust cycles marked by capital inflows, current account deterioration and a rise and fall of the real exchange rate," Working Papers in Economic Theory 2012/10, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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    Keywords

    yen exchange rate; cash flow; current account; foreign lending maturity structure;
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