Japan's Enigmatic Coexistence of Strong Currency and Trade Surplus

This paper shows that the economic policies of the US and Japan have led to disequilibrium in the pattern of trade. Both economies have built-in mechanisms tending towards equilibrium. However, with restrictive policies imposed by these countries, disequilibrium is perpetuated. The US "suffers" a trade deficit, while Japan enjoys" a trade surplus. Although a trade surplus has a positive connotation, the prevailing strong yen hurts the Japanese economy. With a more integrated world, countries can no longer be concerned solely about their own economies. The recession in Japan is partially caused by this large imbalance in trade since the strong yen is driving out many Japanese businesses that can no longer compete. The large government deficit in the United States will also affect the exchange rate and the rest of the world, since the possibility of a default may raise the interest rates as well as the level of uncertainty. Countries must cooperate with each other in order to allow the world economy to reach its equilibrium. Intervention polices require that the citizens in each country actually trust that governments are committed to resolve the enigma of the strong Yen (endaka). Without strong conviction by the public that the policy would be seriously implemented, the exchange rates will not change in the desired direction.

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