U.S.-Japan Macroeconomic Relations: Interactions and Interdependence in the 1980s

For the economies of both the United States and Japan the 1980s was an eventful decade. In the United States, this was the decade of the Reagan macroeconomic policy characterized by very large budget and trade deficits, a major tax cut, a strong dollar, a large capital inflow especially from Japan, and intensifying trade conflicts with Japan. For Japan, it was a decade of accelerating asset prices (the "bubble" in the stock and land markets), a steadily strengthening yen, the lowest official lending rate in Japan's monetary history, a major boom sustained by large investment and exports, a burgeoning trade surplus and rapidly increasing investment abroad, and worsening economic conflicts with the United States.

The eight studies presented in this volume examine why the United States and Japan adopted their respective macroeconomic policies of the 1980s and the interrelationships and consequences of each. The analytic methods adopted by these authors range from broad-gauged political-economic analyses offering critical overviews of policy motivations and effects, to technically rigorous econometric studies attempting to confirm or reject various hypotheses relating to the effects of international tax rate differences on capital flow, determinants of exchange rates, relations between capital flow and trade, and many other issues. The collective goals of the authors are not only to better understand the reasons for, and the effects of, the American and Japanese macroeconomic policies of the 1980s but also to help comprehend how and how substantively the legacies of the macroeconomic policies of the 1980s are continuing to influence in the 1990s the economic performance of both economies and the character and intensity of the economic tension between them.