Dollar-Yen Exchange Rate: US-Japan Trade Conflict and Political Leaders' Strategy

Abstract

The relationship between the exchange rate policy and trade policy has not been studied extensively in academia, particularly for the case of the US. While the US presidents have mostly supported free trade, exchange rate policy was constrained by the US non-intervention policy stance. I examine two cases in the 1970s and 80s to find out what kind of strategies over exchange rate the US political leaders adopted amid intensified trade disputes with Japan, and why. Meanwhile, contrary to conventional perception, the Japanese political leaders were willing to cooperate with the US, as it fulfilled their national interest. However, the cooperation ended in a conflict, resulting in a significant decline of the dollar.