Japan marks forty years since the Plaza Accord, sparking renewed debate over its long‑term impacts on the national economy. Designed to devalue the US dollar in 1985, the agreement reshaped Japan’s currency policies and its export competitiveness. Its influence still lingers over inflation, foreign exchange stability, and economic growth.
On September 22, 1985, Japan joined the United States, Britain, France, and West Germany in a coordinated market intervention. Japanese Finance Minister Noboru Takeshita and Bank of Japan Governor Satoshi Sumita led the negotiations. Their goal was to reduce the US trade deficit by allowing major currencies, including the yen, to rise.
At the time, the yen traded near 240 per dollar. Within two years, it had appreciated to around 130 per dollar. That surge in value hit exporters hard, triggering monetary easing from the Bank of Japan. Interest rates were slashed between 1986 and 1987, fueling asset inflation in stocks and real estate. This policy response contributed to Japan’s financial bubble, which burst in the early 1990s.
Inflation has returned in recent years, driven by import costs and a weakened yen. Compared to 2020 levels, the real effective exchange rate dropped to 72 by July 2025. Higher prices now burden households across energy, food, and consumer goods. Meanwhile, corporate profits from overseas have increased, but domestic tech investment remains low. Japan’s economic potential growth rate is under one percent. In 2023, nominal GDP per capita placed the country 22nd among OECD nations.
Experts warn the Plaza Accord shaped Japan’s long-term economic posture. Professor Yukio Noguchi links prolonged monetary easing to inefficient investment. Capital moved into real estate instead of innovation, weakening productivity gains. Other analysts argue Japan’s persistent fear of a strong yen has led to policy imbalance. The Bank of Japan, especially under Haruhiko Kuroda, intensified currency pressure through aggressive bond buying.
Moving forward, Japanese officials face tough policy choices. A weaker yen helps exporters but worsens consumer inflation. Tightening policy could slow growth further. Some lawmakers may propose new trade or currency reforms. Others might redirect stimulus toward households and small businesses. The BOJ could also revise its market intervention strategy.
To regain momentum, Japan must modernize its economy. Stronger regional financial cooperation could help stabilize currency markets. Reforms in labor, innovation, and capital allocation are now critical. Even decades later, the Plaza Accord continues to shape Japan’s fiscal and monetary direction.
