Internationalizing the Yen, 1984-2003: Unfinished agenda or mission impossible?

Abstract

The chapter reviews the experience of Japan in its attempt to internationalize its currency from 1984 to 2003. Although the efforts reluctantly began in 1984 under pressure from a foreign government, it soon became the stated policy of the Japanese government to “internationalize the yen”, in other words, to expand the role of the yen in the international monetary system as well as in international transactions. The efforts essentially involved measures to ease restrictions on cross-border capital flows and to develop new yendenominated markets and instruments. By 2003, however, it was clear that any further attempt to internationalize the yen would be futile without a fundamental change in the economic might of Japan or major cooperation efforts among Asian countries to promote the role of the yen in the region. At the end of the internationalization efforts, the international status of the yen essentially remained where it had started two decades earlier, for reasons about which Japan alone could do very little. The sustained yen internationalization efforts, however, helped free up the Japanese economy from regulatory barriers inhibiting the free movement of capital. In retrospect, yen internationalization was a banner under which parties of various vested interests were brought together to benefit the whole society.