The Empirical Study On How The Appreciation Of Japanese Yen Causes The Asset Price Bubble In1980s: The Enlightenment On The Economic Development Of China

The appreciation of Japanese yen (JPY) has experienced a long and tortuousprocess in the last century, with the high-speed development of Japan’s economy.After the one-step rise of20percent in the value of JPY in the Plaza Accord in1985, aserious asset price bubble represented by stock and real estate bubble took place andcause a heavy blow on its economy. Chinese Renminbi now is at the early stage ofappreciation and is being faced with the trouble of asset price rising. The study ofJapanese case has a realistic significance for China. With regard to the cause of theasset bubble, this thesis attempts to analysis from the perspective of “the appreciationof JPY”.This thesis concluded that the appreciation of JPY can partly explain the rise andbubble of asset prices such as stock and real estate. The explanation “JPY’sappreciation” on the cause of asset price bubble of make sense in some ways. Theanalysis goes from the three aspects.In the first place, the theory analysis. The thesis explains the reason why stock andreal estate would always become the carrier of asset price bubbles, and then analyzesthe pathway from domestic currency appreciation to the rising of asset prices. Firstly,after currency appreciation the international capital flow and government policyresponse, which caused a lower interest rates and monetary condition. Secondly,during the process from lower interest rates and lower monetary conditions, the innervalue of the asset is growing and the asset replace effect, credit expansion effectemerge. Thirdly, the overall economic overheating caused by wealth effect, togetherwith the changes of investors’ anticipation and irrational behavior, make the pricesarise eventually turn into bubbles.In the second place, the statistical analysis. First, Review the high inflation in the1970s and asset bubbles in the late of1980s. After that,use statistic data demonstratethe pathway from domestic currency appreciation to the rising of asset prices whichechoes the theoretical analysis the second chapter2.The analysis contains thecontribution to looser currency environment of international capital flow andgovernment policy response, the presence of asset replace effect, credit expansioneffect. In the third place, the empirical analysis. On one hand, Test results of Johansoncointegration show a long-term cointegration relationship and a strong negativecorrelation between the exchange rate of JPY (JPY per USD) and the Nikkei225index during the sample period. Also the exchange rate is the granger causes of thestock index. On the other hand, E-G two step test demonstrated a cointegrationrelationship of the exchange rate of JPY (JPY per USD) and Urban Land Prices Indexof the six large cities a negative correlation between the two, which means theappreciation of JPY is corresponding to the rise in the real estate prices.Finally，on the basis of above analysis and the similarities and differences of theeconomic characteristics between China and Japan,the article discusses theenlightenment of Japan’s case to China..