Market history: surging yen finally eases US-Japan trade frictions - Nomura

Analysts at Nomura explained that the surging yen finally eases US-Japan trade frictions. 

Key Quotes:

"When US-Japan trade frictions began to pick up in the 1970s, exchange rates still responded correctly to developments in the balance of trade."

"Trade frictions between the US and Japan were prevented from growing any worse than they did because USD/JPY fell from 360 in mid-1971 to less than 200 in 1978 in response to widening Japanese trade surpluses with the US. "

"However, the combination of US financial liberalization, which began with the Monetary Control Act in 1980, and Japan’s efforts to liberalize capital flows, which commenced the same year, prompted huge capital outflow from Japan as its investors sought higher yielding US dollar bonds."

"The yen fell back to nearly 280 against the dollar as a result, rekindling the two countries’ trade problems."

"Ronald Reagan, a strong supporter of free trade, responded with the September 1985 Plaza Accord, which took USD/JPY from 240 in 1985 down to 120 just three years later."

"The yen fell back to around 160 in 1990 but subsequently rose as high as 79.75 in April 1995, largely bringing to an end the trade-related hostility that had plagued the two nations’ relationship for so long."