40 Years Since Plaza Accord: Build Strong Economy Resilient to Impact of Exchange Rate Changes

Editorial

17:24 JST, September 22, 2025

Forty years have passed since the then Group of Five industrialized nations, including Japan and the United States, signed the Plaza Accord, which aimed to coordinate policies to correct the strong dollar.

Globalized under the leadership of advanced nations, the world economy has undergone a significant transformation, mainly with the rise of China and the decline of Japan’s position. Japan must build a strong economic foundation.

On Sept. 22, 1985, finance ministers and central bank governors from Japan, the United States, West Germany, France and Britain gathered at New York’s Plaza Hotel and agreed to correct the strong dollar.

Although initially hailed as a landmark agreement, two years after its signing the yen exchange rate, which had been around ¥240 to the dollar, surged beyond expectations to the ¥120 range, and the excessive yen appreciation plagued exporting companies.

Today, the accord is often brought up for its negative aspects. Pressured by the United States to expand domestic demand as a means to reduce U.S. trade deficits, Japan relied on monetary easing. This subsequently led to the bubble economy and its collapse, and eventually brought about the “lost 30 years,” as some have pointed out.

Toyoo Gyoten, former vice finance minister for international affairs, who was involved in the agreement as a bureaucrat at the predecessor of the current Finance Ministry, recalled the time, saying, “The export-driven Japanese economy should have been transformed into an economic structure less susceptible to the impact of drastic yen fluctuations.”

Building a strong economic foundation resilient to currency fluctuations remains an important task for Japan. This is especially true today, when major nations find it increasingly difficult to cooperate on monetary policy.

In addition to China, emerging and developing countries of the so-called Global South, like India, have grown, making it impossible for only the advanced countries to set the rules. The dysfunction of the Group of 20 major economies has also become quite alarming.

Even if the international financial order centered on the dollar as the key currency remains for the time being, some observers believe the dollar’s status will gradually weaken.

The United States, which spearheaded the Plaza Accord, is now turning its back on international cooperation. U.S. President Donald Trump, who advocates the revival of U.S. manufacturing, may even aim for a Plaza Accord 2.0 that unilaterally imposes a weaker dollar, which is advantageous for U.S. exports.

Japan’s trade settlements are largely denominated in dollars, with yen-denominated exports accounting for less than 40%. By reducing its dependence on the United States and increasing yen-denominated settlements while deepening ties with Asia, Japan could mitigate foreign exchange risks in its exports.

To build a Japanese economy resilient to exchange rate fluctuations, it is necessary to boost domestic investment and shift toward a domestic demand-led structure where both wages and prices rise.

Many countries are proceeding with strategies to bring back domestically important industries to their own lands for economic security. Japan, too, should have many areas of investment, such as decarbonization and semiconductors, that can contribute to growth.

(From The Yomiuri Shimbun, Sept. 22, 2025)