Word: yen
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Dates: during 1980-1989
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...latest initiative toward boosting the yen began last fall. Meeting in Tokyo, President Reagan and Japanese Prime Minister Yasuhiro Nakasone pledged to seek ways to end economic friction, particularly concerning the value of the yen. But little progress was made until the end of March, when Treasury Secretary Donald Regan went to Tokyo and bluntly scolded the Japanese at a fist-thumping news conference...
...tough talk apparently made an impact. So did the U.S. suggestion that a greater role for the yen in world finance would mean that Japan would become the second largest shareholder in the World Bank, a prestigious position long sought by the Japanese. At a meeting of economic officials in Rome last week, the two nations wrapped up most of the final details for an agreement...
...deal extracted by the U.S. is based on the theory that if the yen becomes a more freely traded international currency, its price will go up. Despite Japan's size and enormous trading balances (1983 merchandise surplus: $31.6 billion), the yen is not easily used in international finance. Japan's central bank restricts overseas lending and controls the interest rate on yen deposits. As a result, the yen accounts for only about 3% of the currency reserves held around the world; some 85% are in dollars and the rest in West German marks...
Although the precise terms of the agreement have not been made public, Japan is believed to have freed the yen to make it more available for trading on international currency markets. Tokyo will also reduce restrictions on the outflow of the yen and improve the access of foreign banks to the Japanese money market. That means other nations can reduce some of their dollar holdings and start acquiring yen deposits, which should drive up the currency's price in the process...
...addition to liberalizing regulations affecting the yen, Japan seems more willing to open up to foreign companies. Since 1945 U.S. corporations have been able to invest only $2 billion in Japan, while the Japanese have invested about $14 billion in the U.S. Easing restrictions will make it simpler for U.S. businessmen to operate in Japan, as well as allow foreign firms to tap Japan's relatively cheap capital markets. Officials on both sides hope that President Reagan and Prime Minister Nakasone will be able to sign a yen agreement in London at the June economic summit...