Forty years ago today, on September 22, 1985 (August 8, 1985 lunar calendar), the Plaza Accord of Japan. The Plaza Accord of Japan Plaza Accord was the early 1980s, when the US fiscal deficit increased sharply and the foreign trade deficit increased significantly. The United States hoped to increase the export competitiveness of its products through the depreciation of the dollar to improve the balance of payments of the United States, so it signed this agreement. The Plaza Accord was strongly promoted by the Japanese Ministry of Tibet (the Japanese department in charge of finance and economics before 2000). At that time, the Japanese economy was overheating, and the appreciation of the yen could help Japan expand overseas markets and establish sole proprietorships or joint ventures. After the Plaza Accord was signed, the yen appreciated sharply, and the domestic bubble expanded sharply. Ultimately, the bursting of the real estate bubble caused the long-term stagnation of the Japanese economy. Plaza Accord Comics "Plaza Accord": In the early 1980s, the US fiscal deficit and foreign trade deficit increased sharply. The United States hoped to increase the export competitiveness of its products through the depreciation of the dollar to improve the US balance of payments imbalance. On September 22, 1985, the finance ministers and central bank governors (referred to as the G5) of the United States, Japan, the Federal Republic of Germany, France and the United Kingdom held a meeting at the Plaza Hotel in New York and reached an agreement among the five governments to jointly intervene in the foreign exchange market to induce an orderly depreciation of the exchange rate of the US dollar against major currencies in order to solve the problem of the huge US trade deficit. Because the agreement was signed at the Plaza Hotel, the agreement is also known as the "Plaza Agreement". After the signing of the "Plaza Accord", the above-mentioned five countries began to jointly intervene in the foreign exchange market, selling a large amount of US dollars in the international foreign exchange market, which in turn formed a selling frenzy of market investors, resulting in a sustained and sharp depreciation of the US dollar. In September 1985, the US dollar fluctuated against the yen at 250 yen per dollar. Less than three months after the signing of the agreement, the US dollar quickly fell to about 200 yen per dollar, a decline of 20%. After that, the US authorities represented by US Treasury Secretary Beck and financial experts represented by Friedrich Bergstern (then the director of the US Institute of International Economics) continued to verbally intervene in the dollar, and the minimum fell to 120 yen per dollar. In less than three years, the dollar has depreciated by 50% against the yen, that is to say, the yen has appreciated twice against the dollar. Since 1980, there have been two changes in the domestic economy of the United States. First, the foreign trade deficit has widened year by year, reaching as high as 160 billion US dollars in 1984, accounting for 3.6% of GDP that year. Secondly, the emergence of the government budget deficit. Under the shadow of the double deficit, the US government has introduced international capital to develop the economy by raising the domestic basic interest rate. The large inflow of foreign capital has caused the dollar to appreciate continuously, and the competitiveness of US exports has declined, so it has expanded to the crisis of foreign trade deficit. Under the pressure of this economic crisis, the United States hopes to depreciate the dollar to strengthen the foreign competitiveness of US products and reduce the trade deficit. In 1977, US Treasury Secretary Michael Blumeuthal, citing the trade surplus between Japan and the former Federal Republic of Germany, verbally intervened in the foreign exchange market, hoping to stimulate US exports and reduce the US trade deficit by devaluing the dollar. His speech caused investors to sell the dollar wildly, and the dollar depreciated sharply against the currencies of major industrial countries. In early 1977, the "Plaza Accord" was unsuitable for Sino-US trade. The exchange rate of the dollar against the yen was 290 yen per dollar. In the fall of 1978, the US government was shocked. In the fall of 1978, President Carter launched a "dollar rescue package" to support the price of the dollar. In 1979-1980, the world's second oil crisis broke out. The second oil crisis led to a sharp increase in energy prices in the United States, which led to a sharp rise in the consumer price index in the United States, and severe inflation in the United States, with inflation rates exceeding double digits. For example, putting money in the bank in the early 1980s ended the year with a negative real rate of return of 12.4%. In the summer of 1979, Paul A. Volcker became chairperson of the Federal Reserve Board. To combat severe inflation, he raised official interest rates three times in a row and implemented a tight monetary policy. The result of this policy was double-digit official and market interest rates in the United States, and short-term real interest rates (real yields after inflation) rose from near-zero on average between 1954 and 1978 to 3% to 5% between 1980 and 1984. High interest rates attracted a large amount of foreign capital to the United States, causing the dollar to soar. From the end of 1979 to the end of 1984, the dollar's exchange rate rose by nearly 60%, and the exchange rate of the dollar against the major industrial countries exceeded the level reached before the collapse of the Bretton Woods system. The sharp appreciation of the dollar led to a rapid expansion of the US trade deficit, and by 1984, the US current account deficit reached a record $100 billion. Signed and implemented in 1985, Japan replaced the United States as the world's largest creditor country, and Japanese-made products flooded the world. The pace of Japanese capital expansion made Americans exclaim that "Japan will peacefully occupy the United States!" Many large manufacturing companies in the United States and members of Congress began to lose their patience. They lobbied the US government and strongly demanded that the then Reagan administration intervene in the foreign exchange market and depreciate the dollar to save the increasingly depressed US manufacturing industry. Many economists also joined the ranks of lobbying the government to change its strong dollar stance. Japan Plaza Accord In September 1985, the finance ministers of five developed industrial countries, including U.S. Treasury Secretary James Baker, Japanese Finance Minister Atsushi Takeshita, former Federal German Finance Minister Gerhard Stoltenberg, French Finance Minister Pierre Beregovoy, and British Finance Minister Nigel Lawson, and the presidents of the five central banks met at the Plaza Hotel in New York. The agreement reached a joint intervention of the five governments in the foreign exchange market to cause the dollar to decline in an orderly manner against major currencies in order to solve the huge trade deficit of the United States. Because the agreement was signed at the Plaza Hotel, the agreement is also known as the "Plaza Accord" (Plaza Accord). The agreement stipulated that the yen and the Mark should appreciate sharply to recover the overvalued dollar. " After the Plaza Accord was signed, the five countries jointly intervened in the foreign exchange market, and the countries began to sell the US dollar, which in turn formed a selling frenzy among market investors, resulting in the continued sharp depreciation of the US dollar. It is said that at the Plaza meeting, then Japanese Finance Minister Atsushi Takeshita expressed Japan's willingness to assist the United States in taking market intervention measures to lower the exchange rate of the US dollar, and even said that "a 20% depreciation is OK". After this, the US government authorities led by US Treasury Secretary Baker and experts represented by Fred Bergsten (then director of the US Institute of International Economics) kept verbally intervening in the US dollar, saying that the exchange rate of the US dollar at that time was still high and there was still room for decline. Hinted by the tough attitude of the US government, the dollar continued to fall sharply against the yen. " The Plaza Accord "opened the prelude to the rapid appreciation of the yen. In September 1985, the exchange rate of the yen fluctuated around 250 yen per dollar. In less than three months after the" Plaza Accord "came into effect, the exchange rate of the yen rose rapidly to around 200 yen per dollar, an increase of 20%. At the end of 1986, the dollar was 152 yen per dollar, and in 1987 it reached a maximum of 120 yen per dollar. In terms of the nominal exchange rate of the yen against the dollar, from February 1985 to November 1988, it appreciated by 111%; from April 1990 to April 1995, it appreciated by 89%; and from August 1998 to December 1999, it appreciated by 41%. Looking at the real effective exchange rate of the yen, from Quarter 1 to 1988, it appreciated by 54%; from the second quarter of 1990 to the second quarter of 1995, it appreciated by 51%; and from the third quarter of 1998 to the fourth quarter of 1999, it appreciated by 28%. Important Lessons Beginning in the mid-to-late 1980s, with the bursting of the bubble economy, Japan fell into a decade-long economic stagnation, the "Lost Decade". From rapid growth to long-term stagnation, Japan's development experience provides a rare living lesson for emerging countries that are ambitious and committed to economic take-off. As the most important exporter of products, China's foreign exchange reserves have jumped to the top in the world, and the RMB is under tremendous pressure to appreciate. This situation is very similar to that of Japan in the mid-1980s. Looking at the development of the Japanese economy in the past three decades, the Plaza Accord in 1985 was a turning point. Some analysts pointed out that after the Plaza Accord, Japan's export competitiveness was hit hard by the appreciation of the yen, and the economy was in a slump for more than a decade. Even in the economics profession, a considerable number of people believe that the Plaza Accord is a shocking conspiracy laid by the United States to bring down Japan. Some experts believe that the main culprit of the Japanese economy entering a decade-long slump is the "Plaza Accord". But some experts believe that the sharp appreciation of the yen provides a good opportunity for Japanese companies to go global and expand overseas on a large scale, and also promotes the adjustment of Japan's industrial structure, which is ultimately conducive to the healthy development of the Japanese economy. Therefore, the formation of Japan's bubble economy should not be entirely blamed on the appreciation of the yen.