Yen Bloc: Toward Economic Integration in Asia

Table of Contents

preface xiii glossary xvii 1 Overview 1 Four Analytical Approaches to a Yen Bloc 2 Toward a Yen Bloc in Asia 8 part one THE ECONOMIC FUNDAMENTALS SUPPORTING A YEN BLOC 2 The Rise of Regionalism in Asia 15 A Virtuous Circle between Interdependence and Economic Growth 15 From Flying Geese to Falling Geese 23 The Asian Financial Crisis 28 Contents vii viii contents 3 Deepening Japan-Asia Interdependence 38 The Yen-Dollar Rate and Asian Economic Growth 39 Asia as a Major Determinant of Japanese Economic Performance 45 Japan’s Hollowing-Out Problem 56 4 Asia in Search of a New Exchange Rate Regime 61 The Vulnerability of the Dollar Peg System 63 Dedollarization versus Redollarization 68 Polar Regimes versus Intermediate Regimes 75 5 Revitalizing the Japanese Economy 83 The Aftermath of the Bubble Economy 84 Structural Reform 94 Early Signs of Change 100 part two FORMING A YEN BLOC IN ASIA 6 A Japanese Perspective 109 The Internationalization of the Yen 109 The Benefits to Japan 115 Promoting the Yen as an International Currency 121 7 An Asian Perspective 128 In Search of Stability against the Yen 128 An Optimal Peg for an Asian Country 137 The Yen as an Anchor 144 Appendix 147 8 A Regional Perspective 151 The Theory of Optimum Currency Areas 152 Is Asia an Optimum Currency Area? 159 The Key Currency for an Asian Monetary Union 167 contents ix 9 A Global Perspective 175 National Currencies as International Currencies 176 The Limitations of the Present International Monetary Regime 182 Currency Blocs as Building Blocks 190 references 197 index 205 Figures Figure 2-1. Asia’s Flying Geese Pattern of Economic Development, by Industry 17 Figure 2-2. Asia’s Flying Geese Pattern of Economic Development, by Region 17 Figure 2-3. Japanese Foreign Direct Investment, by Manufacturing Industry, 1970–99 19 Figure 2-4. Asian Exports, by Region, 1986–99 22 Figure 2-5. Competitiveness and Complementarity between China and Other Asian Countries, 1999 25 Figure 2-6. China and Japan as Sources of the U.S. Trade Deficit, 1988–99 30 Figure 3-1. The Yen-Dollar Rate and Short-Term Asian Economic Growth, 1982–99 40 Figure 3-2. Korean Export Performance and the Yen-Dollar Rate, 1981–99 43 Figure 3-3. Competitiveness and Complementarity between Japan and Other Asian Countries, 1999 48 Figure 3-4. The Yen-Dollar Rate and Korea’s Terms of Trade, 1980–99 49 Figure 3-5. Japanese Exports, by Region, 1985–2000 51 Figure 3-6. Japanese Imports, by Region, 1985–2000 52 Figure 3-7. Share of Japanese Imports of Manufactured Goods, by Importing Region, 1985–99 53 Figure 3-8. The Yen-Dollar Rate and Asia’s Share of Japanese Exports, 1982–2000 54 x  Figure 3-9. The Yen-Dollar Rate and Japan’s Terms of Trade, 1978–99 56 Figure 4-1. Exchange Rates of Asian Currencies against the U.S. Dollar, 1995–2000 62 Figure 4-2. U.S. and Asian Economic Growth, 1971–99 65 Figure 4-3. Exchange Rates of the Baht, 1995–98 71 Figure 5-1. Nikkei Average, 1985–2000 85 Figure 5-2. Japan’s GDP Growth, 1985–2000 85 Figure 5-3. Japan’s Monetary Base, Money Supply, and Nominal GDP, 1980–99 89 Figure 5-4. General Government Financial Balances, Japan and the United States, 1990–2000 93 Figure 5-5. General Government Gross Financial Liabilities, Japan and the United States, 1990–2000 94 Figure 5-6. Incremental Capital-Output Ratio, Japan and the United States, 1974–99 96 Figure 5-7. Focus of Japanese Corporate Strategy, 1998 102 Figure 6-1. Yen-Invoiced Transactions, Japan’s Trade, 1986–98 113 Figure 6-2. The Effective Exchange Rates of the Yen, the Deutsche Mark, and the U.S. Dollar, 1974–99 116 Figure 6-3. The Effect of a Yen Bloc on Japan 119 Figure 7-1. A Dollar Bloc and a Deutsche Mark Bloc, with No Yen Bloc 132 Figure 7-2. Movements of the Won-Dollar Rate under a Basket Peg and a Dollar Peg 134 Figure 7-3. The Output Stabilizing Effect of Pegging the Korean Won to a Basket of Currencies 143 Figure 7-4. The Impact of Exchange Rate Fluctuations on Economic Growth 148 Figure 8-1. Costs and Benefits of a Monetary Union 159 Figure 8-2. Inflation and Level of Economic Development, Ten...