The Domestic Politics of the Yen’s Re-internationalisation: Dynamic Interaction and the Core Executive

ABSTRACT

Domestic political factors are often overlooked in discussions about the determinants of currency internationalisation. By studying the re-internationalisation of the Yen, our research found that the dynamic interactive mechanism between policy actors has a profound impact on the overall course of domestic currency internationalisation. In the case study, along with the establishment of the “Prime Minister-controlled” model, the “bureaucrat-controlled” policy process of Yen re-internationalisation led by the Ministry of Finance (MOF) experienced substantial intervention by the Prime Minister and related influences. The case study shows that Koizumi exerted pressure on the MOF and the Bank of Japan (BOJ) via budgeting power and the flexible use of resources. Moreover, the MOF and the BOJ relied on accumulated professional financial experience and the resources of legally binding independence in financial policy to successfully safeguard organisational interests and core policy concepts. Our research shows that resource exchange between the three entities helped the Prime Minister to minimise policy confrontation effectively while objectively promoting the interdependence of fiscal, monetary and financial policies, which drove sharp change in the Yen re-internationalisation policy and its long-term outlook. This case study of Japan suggests ongoing concern about the increasing politicisation of the distinctly professionalised currency internationalisation policy.

KEYWORDS:

• Japan
• currency internationalisation
• Yenre-internationalisation
• dynamic interactive mechanism
• core executive
• resource exchange
• Prime Minister-controlled policy process

Notes

1. The arguments include the following perspectives: (1) a trade structure centred on dollar-denominated raw materials restricting the output channels of current accounts; (2) an incomplete financial and market system; (3) an official promotion strategy based on material miscalculation; and (4) exchange rate and monetary policies at odds with the stated goals (Ito et al., 2013; Kikuchi, 2000; Mckinnon, 1993).

2. For details regarding the participation of political actors (represented by special groups of politicians such as ethnic parliamentarians and the Prime Minister’s Cabinet) and other bureaucratic actors (represented by the Bank of Japan and the Finance Department) in Japan’s international monetary policy, see Kamikubo (2010).

3. According to Taniguchi Makoto, a former Japanese ambassador to the United Nations, there are different standpoints and views inside the MOF (author interview, 2014).

4. Koizumi holds that the core goal of “fiscal soundness” and the prerequisite for winning public support is to limit the issuing scale of national debt to 30 trillion Yen; it is also the key to confronting the “resistance force”. Therefore, to abandon that goal would cost him popular support and even the foundation of his political power (see Kamikawa, 2010, p. 140).

Additional information

Funding

This study has been recognised and sponsored by the following bodies and grants: Youth Projects of National Social Science Foundation 2019 (ID: 19CGJ045); Youth Project for Humanities and Social Sciences Research of Chinese Ministry of Education 2017: Research on the Dilemma of Supply and Demand of International Financial Public Products – taking global dollar liquidity as an object of study (ID: 17YJCZH117) and General Program of Shanghai Social Science Project 2017: A Research on RMB internationalization Path Selection within the New Normalcy – A Focus on Relationship between Supply and Demand of International Financial Public Goods (ID: 2017EGJ002).