The Yen and Its East Asian Neighbors, 1980-1995: Cooperation or Competition?

By looking at how an East Asian currency moves when the yen fluctuates sharply against the US dollar, we sometimes find that the reaction has been much more significant than would be suggested by the econometric estimates of the weight of the yen in nominal exchange rate determination. Moreover, the Korean won and the Malaysian ringgit have tended to move more closely with a depreciating yen, suggesting the countries' emphasis on export promotion. The Singapore dollar, on the other hand, has tended to move more closely with an appreciating yen, underscoring the importance attached to price stability. The paper concludes that, given the trend appreciation of the yen during the recent past, emphasis on price stability has contributed more to monetary cooperation in Asia than emphasis on export promotion.

Japan's official development assistance : recent issues and future directions

Japan remains the world's largest national donor of aid funds. But the Japanese government, facing prolonged economic stagnation and mounting public sector debt, is under increasing public pressure to reduce aid budgets and to use official development assistance in more explicit pursuit of Japan's own economic and political interests. Internationally, Japan continues to attract criticism for its emphasis on infrastructure projects and its limited willingness to participate in multilateral partnerships. The authors argue that Japan can meet these domestic and international challenges by developing a coherent national strategy for official development assistance, broadly designed to enhance effectiveness, accountability, and transparency.Decentralization,Banks&Banking Reform,Payment Systems&Infrastructure,Gender and Development,Economic Adjustment and Lending,Banks&Banking Reform,Development Economics&Aid Effectiveness,Economic Theory&Research,Economic Adjustment and Lending,Public Sector Economics&Finance

Proposed strategy for a regional exchange rate arrangement in post-crisis East Asia

After discussing major conceptual, and empirical issues relevant to the exchange rate policies of East Asian countries, the authors propose a regional exchange rate arrangement designed to promote intra-regional exchange rate stability, and regional economic growth. They argue that: 1) For developing countries, exchange rate volatility tends to significantly hurt trade and investment, making it inadvisable to adopt a system of freely floating exchange rates. 2) Given the high share of intra-regional trade, and the similarity of trade composition in East Asia, exchange rate policy should be directed toward maintaining intra-regional exchange rate stability, to promote trade, investment, and economic growth. 3) the current policy of maintaining exchange rate stability against U.S. dollar as an informal, uncoordinated mechanisms for ensuring intra-regional exchange rate stability is sub-optimal. A pragmatic policy option - conducive to a more robust framework for cooperation in monetary, and exchange rate policy - wold be a coordinated action to shift the target of nominal exchange rate stability, to a basket of tri-polar currencies (the U.S. dollar, the Japanese yen, and the Euro). This alternative would better reflect the region's diverse structure of trade, and foreign direct investment.The authors envision no rigid peg. Instead, at least initially, each country could choose its own formal exchange rate arrangement - be it currency board, a crawling peg, or a basket peg with wide margins. At times of crisis, the peg might be temporarily suspended, subject to the rule that the exchange rate would be restored to the original level as soon as practical. Only in extreme circumstances, would the level be adjusted to reflect new equilibrium conditions.Environmental Economics&Policies,Economic Stabilization,Macroeconomic Management,Fiscal&Monetary Policy,Economic Theory&Research

The Japanese system of foreign exchange and trade control, 1950-1964

This paper will present a summary of how Japan's system of foreign exchange and trade control operated in the early 1950s as well as how it was liberalized from the late 1950s into the early 1960s. As it stands, the paper is largely descriptive and is intended to provide background information for conducting more analytical studies of some of the economic policies of the early post-war period

Exchange Rate Movements and Tradable Goods Prices in East Asia: An Analysis Based on Japanese Customs Data, 1988–1999

This paper uses a dynamic panel data model to estimate the pass-through coefficients of 20 nine-digit industrial commodities that are traded between Japan and its East Asian and industrial country trading partners. By using the monthly series of unit export and import values obtained from the Japanese customs data for the period 1988–99, it shows that price pass-through is much larger for Japanese exports than for Japanese imports, suggesting that the yen prices of Japanese imports do not fall (rise) very much when the yen appreciates (depreciates), whereas the prices of Japanese exports rise (fall) considerably in the buyerís currency. With the notable exception of some imports from Malaysia, the degree of price pass-through was not qualitatively affected by the Asian currency crisis of 1997. Copyright 2001, International Monetary Fund

Establishing monetary union in the Gulf Cooperation Council: What lessons for regional cooperation?

The paper reviews the experience of regional economic cooperation in the Gulf Cooperation Council (GCC). Conceived as a regional security alliance, the GCC has evolved to become a common market in the making. All six GCC countries participate in the common market project, and additional countries may join. But the timing of introducing a common currency, initially targeted for 2010, remains uncertain, especially in the light of the ongoing euro area crisis. Two countries have withdrawn from the common currency project; another has ceased to comply with a prerequisite for entering the monetary union. But the GCC is not the same as the GCC Monetary Union, nor should the success of the GCC be judged solely on the basis of how many member states end up participating in the single currency. From the standpoint of Asia, the contrast appears striking. In Asia it has been a slow and difficult process to form consensus on regional cooperation, but political agreement collectively to promote economic integration was reached rather quickly in the GCC. Even so, regional institution building, especially in creating regional decision-making bodies, has been slow in the GCC; the region is yet to see the degree of economic integration already experienced in Asia. An important lesson of the GCC experience is that political will and leadership alone is not a sufficient condition for success. What ultimately determines the success of any regional cooperation effort is the willingness of countries to surrender part of their national sovereignty, a difficult feat for any group of countries

Regional Surveillance for East Asia: How Can It Be Designed to Complement Global Surveillance?

This paper discusses conceptual and operational issues related to regional surveillance for East Asia, which is a topic that has assumed considerable prominence in recent months. The need for regional surveillance is both immediate and evolving. For the immediate need, a surveillance mechanism must cover the operational requirements of the Chiang Mai Initiative Multilateralization (CMIM) as a conditional lending facility. At the same time, it must also respond to East Asia’s evolving need for a formal framework of policy dialogue and cooperation as economic integration deepens and macroeconomic interdependence strengthens. The paper discusses six principles that can help guide the design of an effective regional surveillance mechanism for East Asia: (i) avoid duplication with other organizations, (ii) clearly define the purpose of surveillance, (iii) centralize surveillance activities in a single organizational unit, (iv) use objective indicators to inform analysis, (v) design the governance structure to ensure independence, and (vi) provide analysis and recommendations directly to senior policymakers

The Effectiveness of Foreign Exchange Market Intervention: A Review of Post-2001 Studies on Japan

Post-2001 studies on Japanese official intervention, though divergent in results, generally support the effectiveness of daily intervention in influencing yen-dollar exchange rate returns. Studies are less conclusive about the impact on volatility. Any impact of intervention appears to be short-lived and a reversal of the initial impact to occur on subsequent days, suggesting market microstructure as the primary channel: intervention acts like any other information and works through order flows. The overriding message of the literature is that the impact of intervention depends on the conditions under which it takes place. Each intervention is thus a unique event. This explains why econometric tests of the average impact of intervention yield mixed results