In the latter half of the 1960s, Japan's trade balance broke away from its traditional pattern of worsening during economic upturns. The decision to tighten monetary policy, implemented in September 1969, was made in the midst of a continuing balance of payments surplus, unlike previous tightenings aimed at improving the positions in the balance of payments. Previous studies have assessed that this tightening further increased the balance of payments surplus and led to the Nixon Shock. They have pointed out the delay in policy makers' recognition of the fundamental changes in balance of payments trends and the need to change the exchange rate. Focusing on the perspective of the Bank of Japan (hereafter BOJ) before and after this monetary tightening, this paper examines how the BOJ came to recognize trends in the balance of payments and the policy challenges of being a "surplus country," based on contemporaneous sources. In mid-1969, Japan was "for the first time in her history, experiencing the problems of surplus countries." During this period, the policy of restraining the growth of foreign exchange reserves had begun. However, foreign countries demanded more aggressive removal of import restrictions and the liberalization of capital exports on the premise that surpluses would be established. Domestically, this was perceived as the pursuit of responsibility of a surplus country. The BOJ tightened monetary policy with this responsibility in mind. At that time, the core of the responsibility of surplus countries for Japan was "getting out of the restrictive system," especially import liberalization and capital export liberalization. In this sense, the BOJ's awareness of the policy response at this point was not necessarily out of step with international standards.
Keywords: Balance of payment; Monetary policy; Responsibility of a surplus country
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.
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