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How the Plaza Accord helped the US destroy the Japanese economy

And how the US is doing it again to China

Despite being one of the most masterful pieces of foreign policy conducted by the United States to establish itself as the indisputable superpower, most of you have probably not heard of the Plaza Accord.

However, you might have heard about the Japan’s lost decade, or lost decades. This the time period starting around 1990 that resulted in the stagnation of the Japanese economy that to even this day, it has not fully recovered from. If you take PPP per capita to be a measure of standard of living, then the standard of living in Japan has not improved for three decades. Additionally, the Nikkei 225, the stock index of major Japanese companies peaked in 1990 again, three decades later has still not returned to the same level. During the same period of time, the US stock index has return 1,000%. (Yes, that’s one-thousand. Not a typo.)

Japan’s Nikkei 225 has not recovered from it’s all time-high three decades ago

Following the second world war, the Japanese economy was devastated from the war. We all know about the two atomic bombs that were dropped on Japan. This obviously not only much economic destruction, but also emotional destruction.

If this wasn’t humiliating enough, the US assumed administrative authority in Japan as part of the peace treaties that ended the war. This allowed the US government to not only run the day-to-day operations of the country as they saw fit, but to also install American military bases across the entire country.

The US and its supporters may claim that this was set up to help Japan rebuild. More critical thinkers would point out that while the US may have had some genuine interest in helping Japan, the more strategic interests were in having influence over Japanese government and society and to establish a larger military presence in that part of the world.

Over the next few decades, Japan would rise from being one of the weakest and poorest countries in the world to becoming the second largest economy in the world, second only to the United States. Economists and historians largely attribute this miraculous growth to the strong education system and growth-focused economic policies. Japan’s would quickly develop a manufacturing expertise that allowed it to produce both the highest quality goods, but also at incredibly efficient prices and sell them across the world. Think about names such as Sony, Canon, Nikon, Toyota, Mitsubishi, Honda. These were all some of the most powerful companies in the world at that time.

In just 2 decades, Japan’s PPP per capita dramatically improved from 16% to 75% of that of the US

This is when the hegemony of the United States comes in. The Japanese economy was growing much faster than that of the US and it’s homegrown industries were dominating international exports. They needed to be stopped.

Along with it’s closest allies, the US signed the Plaza Accord in 1985 with the primary purpose of strengthening the Japanese Yen such that Japanese exports would no longer be competitive in the global market. In general, economies that are primary driven by exports want their currency to be weaker, not stronger so that the prices of the goods are more competitive in the global market.

In the years following the Plaza Accord, the Japanese Yen strengthed 50% against the US dollar.

What happened after is just history. The Japanese economy tanks, an asset bubble pops, and their standing in global affairs has never recovered to the same position. Here we are three decades later and much of these effects are still yet to have fully recovered.

Imagine what global society could have been like if there were two truly global superpowers to keep each other in check. Imagine what global society would be like if Japanese values of craftsmanship, respect, and moderation would have done to global culture. Is it possible that these values and perspectives would have saved us from the US created ideals of materialism, predatory capitalism, and mass production?

Here we are at another global crossroads. China has become the second largest economy in the world, though largely due to its population size. Its PPP per capita still significantly lags that of the US. Yet, the US has already enlisted help from its allies to stop even the potential of another country from getting close to superpower status. The US has already enlisted help from the most powerful companies and media outlets to influence the narrative in its favor.

Before you come up with all the reasons that you think that China may not be equipped to be a global superpower, perhaps think to yourself: if you applied that same critical thinking, can we really bare another few decades of the US leading the world?

On March 5, 2020, Ken Dow posted this news article on Medium.com on, a service that I subscribe to.