capital strongaccountstrong liberalisation the japanese experience and.pdfVIP

Capital account liberalisation: the Japanese experience and implications for China Mitsuhiro Fukao 1. Introduction This paper discusses the experiences of capital account liberalisation in Japan and their implications for China. In Section 2, I provide an overview of the postwar liberalisation process for exchange controls, paying attention to the interaction between exchange controls, the balance of payments and exchange rate movements. In particular, in Section 3 I examine the period 1971-74, when Japan shifted from a fixed rate system to a floating rate system. In my view, this change in the exchange rate regime was not well managed by Japanese policymakers and it may provide an important lesson for China. Then I look into the exchange rate policy in the late 1970s and early 1980s, when Japan liberalised capital account transactions. In this part, I focus on the prudential policy on foreign exchange risk management by financial institutions because it affects international capital movements and exchange rates. Section 4 provides possible lessons for China today. And the last section summarises my conclusions. 2. Overview of the liberalisation process for foreign exchange controls Japan launched its postwar economy under a state-controlled trade system with extremely strict foreign exchange controls. I will provide a short overview of the liberalisation of exchange controls in Japan based on Fukao (1990) and Fukao et al (1993). 2.1 The immediate postwar period When Japan surrendered in August 1945, it lost all of its foreign assets. From 1945 until 1949, all international transactions were effected through SC