Anyway, this piece that Hakki posted is a bit too schematic in places. For example:
>>In April 1995, an agreement was made to drive down the value of the yen
and push up the value of the dollar's kind of reverse Plaza. But this
agreement, which averted an immediate dollar-yen financial crisis, was to
have longer-term consequences. The dollar's rise was to set in motion a US
financial bubble, which continued until April 2000. The increase in the
value of the dollar and of US assets resulted in a flow of liquidity into
the US from the rest of the world. In 1995 the rest of the world bought US
government securities worth $197.2 billion. This was two and a half times
the average for the previous four years. In 1996 purchases of $312 billion
were made, and in 1997, $189.6 billion. Altogether, a total of more than
half a trillion dollars worth in just three years!<<
But this misses the fact that the yen then reversed by 1996 and was back on its way to being way, way over-valued against the dollar. It might well be the case that the high yen helped cause the Asian crisis in the first place, since yen-denominated debt in Asian countries became unpayable.
As I posted earlier, it was the consistently high yen that caused the continued deflationary economy in Japan. And we can now see that to say Japan's economy is relient on exports is practically meaningless. What country's isn't? More than most countries you could say Japan's economy is far more relient on IMPORTS, as well. I do think, however, that for those companies that get to enjoy exporting , the high yen made their once profitable exports profitless, like much of their sales in the highly competitive Japanese domestic market. Panasonic has suffered, but so has world beater Sony.
The dollar might have continued riding high against the euro basket and against the pound and the 'dollars' (Canada, Australia, New Zealand), but not against the yen.
So how do you explain the Japanese not withdrawing their investments in the US because the tanking dollar (and then later tanking S&P) was causing such lousy returns? For one thing, they held dollars because they didn't want to run the yen up to the 79 level again, like they had a few years back.
Finally, what's the yen doing lately? It's getting stronger again, after flirting with the 135 level for a bit. Back in the 120's and way overvalued again. Deflation will continue in Japan. And the dollar will stay undervalued against the yen because that is what the US wants. Clearly, it will let the 'markets' control the level within a certain range and will not support the dollar vs. the yen.
Charles Jannuzi