The Political Economy of Japanese Monetary and Exchange Rate Policy

This study analyzes the political economy of Japanese monetary and exchange rate policy, with particular emphasis on the Japanese position regarding East Asian monetary cooperation and integration. We try to disentangle the factors and interest structures behind the polices taken in order to infer how the Japanese position regarding regional monetary cooperation might evolve over time. The analysis shows that while the current incentive structure within the Japanese economic and political system gives little room for a far reaching commitment of the Japanese government to engage in regional monetary cooperation, a further integration of the Japanese economy into the regional economy and a growing dependency on the East Asian market are likely to shift the equilibrium in favor of regional cooperation