Japan Endaka, 1985-1995

1414 Words6 Pages
In the early Eighties, the U.S. dollar floated high against the Japanese Yen. The Reagan era combination of tight money and high budget deficits was good news for Japan. A high dollar meant a lower yen and cheaper prices for Japanese exports; consequently, the strong dollar was bad news for the U.S. It led to higher export prices, declining sales, fewer jobs, and calls for protectionism. In 1985, Secretary of State James Baker called for secret monetary diplomacy at The Plaza Hotel in New York City. The move was uncharacteristic of the Secretary of State. Normally a free market thinker, cries of protectionism from Congress and the U.S. automotive industry led to Baker’s decision. Finance Ministers and Central Bankers from the world’s five largest industrial nations, the “G-5”, met and came to a surprise decision, The Plaza Accord. The “G-5”, agreed to sell dollars on worldwide currency markets; therefore, decreasing the dollar and creating cheaper global export prices. Japan, exchanged $3 billion for yen to assist in the liquidation of the dollar. It was a policy change by the G-5, abandoning their guiding principle of market driven exchange rates. This led to the phenomena know as “Endaka“or “high yen.” The yen reached a post World-War II high versus the U.S. dollar in 1995 and Japan entered the era of “Super Endaka.” Japan’s Big Four automakers had to respond to market changes that led to declining profit margins on their exports. According to Exhibit 5, in the HBS Japan’s Automakers Face Endaka case study, net return sales for Japanese auto companies went from an average of 3.3 percent in 1985 to 1.4 percent in 1994. On the surface, those numbers looked grim; yet, a difference in cultural perspective helped Japanese carmakers succeed despite continued challenges. U.S. automakers assumed the Japanese would preserve profits strictly with higher

More about Japan Endaka, 1985-1995

Open Document