Poor Yen, it´s always “too low”

The WSJ reports “Yen Weaker Now than at Time of 1985 Plaza Accord”:

Thanks to the Bank of Japan´s aggressive easing measures, Prime Minister Shinzo Abe has successfully fulfilled one pledge he made before coming to power in late 2012: weakening the yen. But has it become too weak?

While the yen is still a long way from its lows against the dollar in 2002, BOJ data suggests that in relative terms, it is at its weakest level in more than 30 years. That’s going beyond the time of the 1985 Plaza Accord, when a group of major nations agreed the yen had to be strengthened, judging it to be too low.

As you can see, while between 1980 and early 1985 the DM depreciated 70% relative to the dollar, the Yen barely budged. With the Plaza Accord the dollar was brought down (depreciated) relative to all currencies. While the DM came down to it´s 1980 level, the Yen appreciated close to 40%!

Plaza Accord

The view at the time was that the Yen was always “weak” and had to be strengthened (the US was “terrified” by Japan´s “competitiveness”). In fact this US “Yen obsession” was a factor that helped bring about Japan´s “lost decades”.

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