External Adjustments under Increasing Integration: Japanese Perspective

Eiji Ogawa and Kentaro Iwatsubo

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper is to investigate how much realignment of currencies is needed for adjustments to the current account imbalances of Japan compared with those of East Asia as a whole, given the productions networks in East Asia. The analyses show that the large realignments of the Japanese yen and other East Asian currencies would be needed if the adjustments are completed with only exchange rates. We also find that the degree of the exchange rate adjustments of East Asia as a whole is smaller than that of Japan only. Moreover, we investigate why the adjustment becomes more difficult if we rely only on the exchange rates in Japan. We find that Japanese outward FDI has increased independently with the exchange rate and that a ratio of income account to current account has increased due to the FDI. The findings imply that the Japanese economy has an increasing structural part of the Japanese current account which does not respond to the exchange rate movement.

Date: 2009-03
New Economics Papers: this item is included in nep-cba and nep-opm
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http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd08-050.pdf (application/pdf)

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Working Paper: External Adjustments under Increasing Integration: Japanese Perspective (2009)
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