The internationalisation of the yen: essential issues overlooked

Abstract

After years of foot-dragging over the need to internationalise the yen, in 1998 the Japanese government implemented a series of institutional measures to enhance the convenience of using the currency. These have had only modest success. This paper argues that three conditions need to be fulfilled before the yen can become a major international currency: confidence in the Japanese economy and its financial system, stability in the yen exchange rate, and fair and transparent market principles in the Tokyo market. The paper focuses on the importance of the market principles, emphasising the need to address the overpresence of the public sector, especially in postal savings, as this scheme has acted to undermine the proper functioning of the government bond market. When the postal savings scheme comes under self-management in 2001, the market mechanism of the Tokyo capital market might become distorted due to the gargantuan size of its investment, resulting in an oligopoly of the market. Show more