Impact of Plaza Accord on the Economy of Japan

Impact of Plaza Accord on the Economy of Japan

Introduction

Japan has ceased to be the richest nation that was in the mid 80s paradoxically thanks to its main trading partner. Inhabit the islands 22 million people living in poverty and half of the labor force develops part-time jobs or job insecurity. It is growing a new generation of workers who no longer enjoy the security and compensation for their parents. The prosperity of Japan (and Germany) grew thanks to the U.S. trade imbalance and a prodigious work ethic along with a powerful domestic savings. But in the early 80s was necessary to correct the imbalances by adjusting the changes between the dollar and the currencies of Japan, Germany and France. The agreement was confirmed at the Plaza Hotel in New York on September 22, 1985 and only two years after the dollar had lost half its value against the yen and 30% against the German mark, i.e. both currencies experienced a considerable increase in their purchasing power (Copelovitch, & Pevehouse, 2011).

Germany could absorb the impact of the revaluation of the frame thanks to the fall of the Berlin Wall in 1989 and the Unification Treaty of October 3, 1990. This allowed dilute the strength of the currency in the creation of new capital and equipment, leaving the country with an unbeatable installed and amortized to compete in the euro zone began when ten years after European unification capacity. He also worked a lot of German diplomacy buying political will in the Med area, but that's a matter for another article we will discuss in due course.

That German "advantage" was not available in Japan, which suffers from the explosion in 1985 parallel two huge bubbles in the stock and real estate market. Both ended up exploding after 5 and 6 years respectively with disastrous consequences for the economy.

As clearly shown in the graphic on the right, the real estate and the stock market soared right after the Plaza Accords. The sharp appreciation of the yen was a sudden increase in wealth for the Japanese people, who suddenly became gay tourists not only worldwide, but especially investors in its stock market and real estate market.

Japan began to lose its competitiveness in China's favor and was forced to outsource their production in Southeast Asia; partly causing the bubbles explode later by the countries of the area. At the same time (once also automatically terminate their own bubbles), instead of leaving break the weakest parts of its banking system, the central bank said by some types of near zero interest. That has caused the country to bleed a slow death that has tried to camouflage the government by increasing public spending. As the population has not been able (and has not wanted) take on more debt, these depressed rates have only benefited big business infrastructure and foreign investors, thanks to the carry trade with the yen, could invest in U.S. technology stocks with very cheap money financed from Japan, ...