ABSTRACT
Exchange rate policy may create or eliminate external trade imbalance. For the sake of clarification it is necessary to refer briefly to the major phases in the history of Japan’s exchange rate and of Japanese exchange rate policy since 1949, when the yendollar rate was first fixed by the American authorities. External disturbances such as the two oil crises and the unprecedented movement of interest rates in the United States have been important nonpolicy factors in the determination of the exchange rate. Domestic qualitative policy allowed nonpolicy factors in the exchange rate determination to respond to “disturbances” caused by foreign quantitative policy measures. Discretionary adjustment differentiating between domestic and external disturbances is perhaps the best description of Japan’s exchange rate policy in terms of the theory of economic policy. The traditional theory of economic policy as developed by Jan Tinbergen dealt with correspondence between policy instruments and targets in the domestic frame exclusively.
