Japan's use of capital controls for exchange-rate management, 1975-1982
Bennett, Sylvia K.
Smith, Gordon W.
Master of Arts
Over the period of 1975-1982, Japan experienced substantial fluctuations in its currency and its current account position. With the oil price shocks and the evolution of the floating exchange rate system, much pressure was placed on the yen. A popular balance of payments policy used by Japan and several other countries has been to impose certain restrictions on capital exports and/or capital imports to offset or reinforce the relative currency demands related to merchandise and services trade. This thesis examines how Japan's use of capital controls changed over the years 1975-1982 to accommodate changes in the current account of the balance of payments. Examination of movements in components of the capital account and in covered interest differentials, in relation to changes in capital controls, demonstrates that there is presumption that the controls were largely effective in Japan's case, during most of the period under study. But as the general international climate for capital flows became more liberal, Japan's controls weakened. There is evidence that the controls were then not successful in stemming the desired capital flows.