THE REAL EXCHANGE-RATE AND THE CURRENT ACCOUNT BALANCE IN JAPAN

This paper empirically and theoretically shows that thrift and the ter ms of trade in Japan, productivity of Japan and foreign countries, and the world longterm real interest rate are the economic fundamentals t hat determine the real exchange rate and the current account balance i n Japan. This paper's empirical results imply that the large current a ccount surplus in Japan can be explained by changes in those fundament als to a great extent. They also provide an plausible explanation for how the simultaneous improvement of the current account balance and th e appreciation of the real exchange rate in Japan could happen in the 1980s. J. Japan. Int. Econ., June 1997, 11(2), pp. 143-184. Korea Inst itute of Finance, 7th Floor, K.F.B. Building, 4-1 Myeong-Dong 1 Ga, Ch ung-Ku, Seoul 110-121, Korea. (C) 1997 Academic Press.