# The Plaza Accord and the endaka turn

The hinge before the bubble: US pressure, market opening, the Plaza Accord yen surge, endaka recession, and the Maekawa reports that push Japan toward domestic-demand and structural reform.

*This story parallel: The world trade and money order*
*This story part of: Princes of the Yen: Japan built, bubbled, and broken*
*This story parallel: 1973: the postwar order breaks*
*This story part of: Production and labor*

## 1981 — U.S.-Japan Wise Men's Group calls for open Japanese markets

In 1981 the U.S.-Japan Wise Men's Group reported that Japan needed to make much greater efforts to open its domestic markets to goods, services, and capital to a degree equal to the United States.

> "The so-called U.S.-Japan Wise Men’s Group reported in 1981 that there was a need for Japan to make much greater efforts to open its domestic markets to the inflow of goods, services, and capital to a degree equal to that of the United States.11"
> — Princes of the Yen

## 1983 to 1987 — Sasaki and Maekawa reports on structural reform

Commissions headed by former Bank of Japan governors produced the Sasaki report of 1983 and the Maekawa reports of 1986 and 1987, which echoed U.S. calls for structural reform of Japan's economy.

> "The reports by commissions headed by former key Bank of Japan governors, namely, the Sasaki report of 1983 and the Maekawa reports of 1986 and 1987, attracted much attention."
> — Princes of the Yen

## January 1983 — Sasaki calls for a five-year plan to transform Japan's economy

In January 1983 former BoJ governor Tadashi Sasaki, as head of the Keizai Doyukai, called for a five-year plan for transforming and liberalizing the Japanese economy, titled 'Toward Consciousness and Behavior of a World Nation.'

> "Having handed the BoJ baton on to Prince Maekawa, Sasaki had become head of the Keizai Dōyūkai (Japan Association of Corporate Executives), and as such, in January 1983 he called for a five-year plan for transforming and liberalizing the Japanese economy, entitled “Toward Consciousness and Behavior of a World Nation.”45"
> — Princes of the Yen

## December 1984 — Maekawa hands over BoJ monetary policy control to Mieno

After ten years running monetary policy as deputy governor and then governor of the Bank of Japan, Haruo Maekawa handed control to Yasushi Mieno in December 1984, freeing him to lobby for structural reform.

> "After ten years in charge of monetary policy, Haruo “Mike” Maekawa handed over the control levers of the economy to Mieno in December 1984."
> — Princes of the Yen

## 1985 — Endaka recession

In 1985 Japan's economy was in the endaka (strong yen) recession, leaving pent-up demand for money as loan officers began working to meet high window guidance quotas.

> "The economy had been in the endaka recession of 1985, and there was pent-up demand for money."
> — Princes of the Yen

## 1985 to 1987 — Yen rises 106 percent

Despite enormous Japanese capital outflows, the yen strengthened sharply, rising 106 percent from 1985 to 1987, which the author calls part of the Great Yen Illusion.

> "Despite the enormous capital outflows, the yen did not weaken. To the contrary, it rose 106 percent from 1985 to 1987.29"
> — Princes of the Yen

## 22 September 1985 — Plaza Accord

Finance officials of five major economies agreed at the Plaza Hotel to weaken the US dollar against other currencies. It was a notable case of coordinated intervention in global currency markets.

## 22 September 1985 — Plaza Accord realigns the dollar

The United States, Japan, West Germany, France and Britain agreed to act together to weaken the dollar against the yen and the mark. The accord showed coordinated state power over exchange rates.

## 22 September 1985 — The Plaza Accord drives the yen sharply higher

At the Plaza Hotel in New York, finance officials of the US, Japan, West Germany, France, and Britain agreed to push the dollar down and the yen up. Within about two years the yen roughly doubled in value against the dollar. The strong yen squeezed Japanese exporters and triggered a policy response at home.

## October 1985 — Deposit interest rate deregulation begins

Gradual deregulation of Japanese deposit interest rates began in October 1985 as part of broader financial liberalization.

> "Liberalization of capital flows in December 1980, gradual deregulation of deposit interest rates from October 1985, increased creation of debt markets, and the introduction of more short-term money market and general open market operations by the central bank all meant that other monetary policy tools could be used by the central bank to achieve its goals, while there was the possibility that window guidance itself would become less effective in such an environment."
> — Princes of the Yen

## 31 October 1985 — Nakasone forms the Maekawa advisory group

Prime Minister Yasuhiro Nakasone created the Advisory Group on Economic Structural Adjustment for International Harmony and appointed Haruo Maekawa to head it, charged with studying how Japan's economic and social structure should change.

> "On October 31, 1985, Japan’s prime minister, Yasuhiro Nakasone, formed the Study Group on Adjusting the Economic Structure for International Cooperation, officially translated into English as the Advisory Group on Economic Structural Adjustment for International Harmony."
> — Princes of the Yen

## 1986 — Japan buys three-quarters of U.S. Treasury auctions

At the 1986 peak of portfolio outflows, almost 90 percent of Japanese foreign securities investment went into U.S. Treasury bonds, and Japanese money absorbed 75 percent of all Treasury bonds auctioned that year.

> "Japanese money mopped up a staggering 75 percent of all Treasury bonds auctioned off in 1986.9"
> — Princes of the Yen

## 7 April 1986 — Maekawa report submitted to the prime minister

After nineteen meetings over five months, Maekawa's advisory group submitted its recommendations on April 7, 1986, calling for a historical transformation of Japan's economic structure toward domestic demand-led growth and deregulation.

> "Over the coming five months, the Advisory Group met nineteen times, and on April 7, 1986, it submitted its recommendations to the prime minister.53"
> — Princes of the Yen

## c. 1986 to 1990 — Japanese capital floods world markets

From around 1986 until 1990, unprecedented Japanese overseas investment flowed into real estate and corporate takeovers worldwide; in 1987 net long-term foreign investment was almost twice the record current account surplus.

> "From around 1986 until 1990, Japanese money flooded the world. From real estate in New York, Hawaii, and Australia to corporate takeovers in the United States, Europe, and Asia, Japanese money seemed to buy up the planet."
> — Princes of the Yen

## May 1987 — Second Maekawa report announced

An updated Maekawa report, expanded from eleven to forty-one pages, reiterated the first report's goals with detailed concrete changes and a timetable for structural transformation by the year 2000.

> "In May 1987, a new, updated Maekawa report was announced. This report had been expanded from eleven pages to forty-one and basically reiterated the points of the first report but included a much more detailed set of concrete changes that Japan should undertake."
> — Princes of the Yen

## July 1987 — Fukui endorses continued monetary easing to implement structural reform

In July 1987, shortly after the second Maekawa report, Toshihiko Fukui, head of the department implementing window guidance, said the right central bank policy for structural transformation was to continue monetary easing and expand bank loans.

> "We saw above that the head of the department that implemented window guidance credit controls, Toshihiko Fukui, had said in July 1987, soon after the publication of the second Maekawa report, that suitable central bank policy to implement the structural transformation of Japan’s economy was to “continue with the monetary easing policy” and, explicitly, for “bank loans to expand.”"
> — Princes of the Yen

## 1988 — Asymmetric cross-border acquisitions of 1988

In 1988 Japanese companies acquired 315 firms abroad while foreigners bought only 11 firms in Japan, illustrating how cross shareholdings kept corporate Japan closed to foreign investment.

> "In 1988, Japanese companies acquired 315 firms abroad. Foreigners, however, bought only 11 firms in Japan."
> — Princes of the Yen

## June 1988 — Third Maekawa report announced

A third version of the Maekawa report was announced in June 1988 under the title "The New Economic Plan, The Japan that Lives Together with the World."

> "A third version of the report was announced in June 1988. It was entitled “The New Economic Plan—The Japan that Lives Together with the World.”"
> — Princes of the Yen