Dollar Diplomacy and Japan’s Lost Decades
American pressure on the Chinese authorities over their currency policy is reminiscent of US pressure on Japan to revalue the yen in the second half of the 1980’s and the first half of the 1990’s. But, while the Chinese believe that currency appreciation caused Japan's long-term deflation and stagnation, they may be misinterpreting what happened.
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TOKYO – A specter is haunting China’s exchange-rate regime: the long-running dispute between the United States and Japan throughout the 1980’s and early 1990’s over the value of the yen. That dispute ended only when Japan’s economy entered its “lost decades,” which has made the Chinese determined not to repeat the experience.