Developments in Mid-late 1980s
The second sharp appreciation of yen in a very short period of time happened
from the mid- to late 1980s. After the Reagan Administration took power in
the US in the early 1980s, the American economy showed a buoyant cycle,
which led to strong domestic demand and increasing imports from overseas.
This, in turn, aggravated US trade deficits and American protectionist
sentiments were intensified. On the other hand, inflationary pressure as well
as fiscal deficits raised the US interest rates, keeping the value of the USD
high.
Under the Plaza Accord in September 1985, the G-5 countries agreed to
take policy-coordinating action amongst themselves to address the
“overvalued” USD. After that decision and until the Louvre Accord a year
and a half later, the US dollar dramatically declined by almost 40 percent.
During that period, Japan’s trade surplus increased significantly and foreign
reserves were also accumulated very rapidly, which was similar to what had
happened in the early 1970s.
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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