Abstract
Since 1980, Japan has experienced a boom-bust-recovery cycle in its level of international financial integration that resembles the shifts in its domestic economic activity. Accordingly, we investigate the links between international financial integration and Japanese macroeconomic performance. In addition to formal tests of the impact of international financial integration, we explore the inter-relation between international financial integration and the behaviour of the yen. We pay special attention to the unusual behaviour of Japanese official reserves. Finally, we seek to evaluate the broad impact of external liberalisation on the Japanese financial system. ∗I thank Noburiho Kiyotaki, Paolo Pesenti, Andrew Rose, the editorial committee and the participants in the New York and San Francisco workshops for their comments. Agustin Benetrix, Christiane Hellmanzeik, Peter McQuade, Barbara Pels and Martin Schmitz provided helpful research assistance. Email: plane@tcd.ie. Tel: +353 1 896 2259. Fax: +353 1 896 3939. Postal Address: The Sutherland Centre, Arts Block, Trinity College Dublin, Dublin 2, Ireland.
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