Japan: Paying the piper 30 years on

“Monetary Policy can only take growth from other countries or borrow it from the future” – Masaaki Shirakawa, during a private conversation, September 2015.

For obvious reasons, Japan was not represented at the original Bretton Woods Conference in 1944 but it was nevertheless decided around 1949–50 that the Japanese Yen should be a member of the system. Reliable legend has it that, at a dinner, McArthur's then economic advisor Mr. Dodge was informed that “yen” literally translates to circle and armed with this piece of information, Dodge chose Y360 as the yen's starting point against the dollar in the Bretton Woods System, an exchange rate that it maintained until 1971 when the system broke apart. Admittedly, given that Japan was suffering hyperinflation during the late 1940s, it is difficult to know with any certainty just what FX rate should have been chosen but economic histories suggest that the Yen would have been more fairly valued at Y250.