I. Follow-Up on the Report of the Council onForeign Exchange and Other Transactions
(Purpose of Study Group for the Promotion of the Internationalization of the Yen)
(1) The Study Group for the Promotion of the Internationalization of the Yen was setin the International Bureau of the Ministry of Finance in September 1999 to follow up on therecommendations of the Council on Foreign Exchange and Other Transactions (former) contained in itsreport of April 1999 entitled "Internationalization of the Yen for the 21st Century," andto conduct surveys and research on necessary measures to promote the further internationalization ofthe yen.
(2) In its above-mentioned report, the Council pointed out that the Asian currencycrisis, the introduction of the euro, and the progress of the financial big bang and other changesin domestic and international economic and financial conditions have added urgency to the issue ofhow to promote the internationalization of the yen. Based on this awareness, the Council made thefollowing recommendations.
| [1] | Achievement of stable economic growth and reconstruction of the financial system. |
| [2] | Stabilization of the value of the yen. |
| [3] | Review of the role of the yen in the foreign exchange systems of Asian countries. |
| [4] | Improving the environment for the internationalization of the yen. |
| [5] | Initiatives for promoting the use of the yen. |
(Progress in Deliberations of the Study Group)
(3) The Study Group for the Promotion of the Internationalization of the Yen hasengaged in active discussions in a total of eleven meetings held since its formation. On variousoccasions, guest speakers were invited to participate in the proceedings. Pursuant to thesedeliberations, an "Interim Summarization" was released in June 2000. The followingsub-committees were also formed under the aegis of the Study Group to examine specific issuesconcerning the internationalization of the yen: Sub-Study-group for Trade and Capital Transactions,Sub-Study-group for Research on Currency System, and Working Party for Research on SettlementSystems. The following specific issues have been assigned to these sub-committees for in-depthinvestigation and study.
| [1] | Foreign exchange regulations in Asia, and the possibility of direct-trading between Asian currencies and the yen. |
| [2] | Investigation of countries adopting currency-basket systems. |
| [3] | Investigation of import-related businesses in Japan. |
(4) Principal measures and initiatives for the promotion of the internationalizationof the yen undertaken after the submission of the Council's report are presented in Attachment 1 andare summarized according to principal recommendations.
(5) The present report consists of a summarization of the Study Group's discussionsconcerning the current situation and future challenges in the internationalization of the yen.
II. Recent Progress in the Internationalization of the Yen
1. Current Conditions
(1) Statistical data pertaining to current conditions in the internationalization ofthe yen are summarized below. (See attached statistical tables for detailed data.)
| [1] | Ratio of Yen-Denominated Transactions in Japan's Foreign Trade (%) |
| 90 | 95 | 97 | 98 | 2000 | ||
| Exports (to world) | 37.5 | 36.0 | 35.8 | 36.0 | 36.1 | |
| Imports (from world) | 14.5 | 22.7 | 22.6 | 21.8 | 23.5 |
[2] | Ratio of Yen-Denominated Assets in Total Overseas Assets of Banks (%) |
| 90 | 95 | 97 | 98 | 99 | 2000 | ||
| Yen | 10.2 | 11.0 | 9.9 | 10.1 | 9.0 | 8.7 | |
| (reference) | US$ | 41.5 | 37.0 | 40.6 | 39.1 | 39.5 | 41.3 |
| Euro | - | - | - | - | 27.7 | 26.9 |
[3] | Ratio of Yen-Denominated Bonds in Total International Bonds (Outstanding) |
| 90 | 95 | 97 | 98 | 99 | 2000 | ||
| Yen | 14.0 | 17.3 | 13.7 | 11.7 | 10.5 | 8.6 | |
| (reference) | US$ | 38.9 | 34.3 | 43.8 | 45.3 | 47.1 | 48.7 |
| Euro | - | - | - | - | 28.8 | 30.0 |
[4] | Value of Samurai Bonds and Non-Resident Euro-Yen Bonds Issued (¥100 million) |
| 90 | 95 | 97 | 98 | 99 | 2000 | |
| Samurai Bonds | 5,750 | 9,765 | 7,202 | 2,598 | 10,233 | 28,567 |
| Non-Resident Euro-Yen Bonds | 49,809 | 108,845 | 178,726 | 123,286 | 139,182 | 167,719 |
[5] | Share of Yen in Foreign Currency Holdings of Overseas Currency Authorities(%) |
| 90 | 95 | 97 | 98 | 99 | ||
| Yen | 8.0 | 6.8 | 5.3 | 5.3 | 5.1 | |
| (reference) | US$ | 50.6 | 56.8 | 62.1 | 65.7 | 66.2 |
| Euro | - | - | - | - | 12.5 |
(2) Regarding the progress made in the internationalization of the yen, theCouncil's report states that the international role of the yen was generally unchanged ordeteriorated somewhat during the 1990s. This development was attributed to the slowdown in Japan'seconomic growth rate after the collapse of the bubble economy. A review of the above statisticsindicates improvement in some areas. However, on the whole, the situation has not changedsignificantly since the Council's report was released.
2. Background
(1) Various reasons can be given for the recent lack of progress in theinternationalization of the yen. The first point concerns the question of confidence in the Japaneseeconomy. The Council's report contains the following statement on this matter. "The first andforemost prerequisite for assuring the acceptance of the yen as an international currency is torestore and to enhance domestic and international confidence in the Japanese economy by promptlystabilizing the financial system by disposing of non-performing loans and lifting the economy out ofits current stagnation. This will require the restoration of medium- to long-term macroeconomicbalance."
(2) The Japanese economy has very strong ties with the Asian region. However, it isnotable that Japan's weight in the economy of the entire Asian region is not necessarily large ascompared to that of other developed countries. (Throughout this report, "Asia" shall referto the countries and regions of Thailand, Indonesia, Malaysia, the Philippines, Singapore, Taiwan,Republic of Korea, Hong Kong, and China.)
| [1] | Japan's Share in Asia's Foreign Trade (%) As a result of Asian economic development and the growth of intra-regional trade, Japan's share has been flat or declining. |
| 80 | 85 | 90 | 95 | 97 | 98 | 99 | |
| Exports | 21 | 17 | 15 | 13 | 12 | 10 | 11 |
| Imports | 23 | 26 | 22 | 22 | 19 | 18 | 19 |
[2] | Share of Japan, U.S. and EU in the Economies of the Asian Region (%) |
| Japan | U.S. | EU | |||||||
| 90 | 95 | 99 | 90 | 95 | 99 | 90 | 95 | 99 | |
| Trade | 18.1 | 17.6 | 15.1 | 19.1 | 18.0 | 15.6 | 12.4 | 13.2 | 13.9 |
| Incoming foreign direct investment (new) | 27.5 | 16.5 | 9.0 | 10.8 | 12.2 | 19.0 | 10.8 | 12.7 | 16.0 |
| Outstanding lending | 59.6 | 49.2 | 28.4 | 5.6 | 5.7 | 6.7 | 30.9 | 41.0 | 59.3 |
| (Note) 1999 figures for outstanding lending are figures for Sept. 2000. | |||||||||
(Reference) Share of Intra-Regional Transactions in the Asian Region (%)
| 90 | 95 | 99 | |
| Trade | 28.9 | 38.3 | 36.7 |
| Incoming foreign direct investment (new) | 36.6 | 37.1 | 39.4 |
| (Note) | 1999 figures are sum for China, Korea and ASEAN-4. Figures for 1990 and 1995 exclude Hong Kong. |
(3) Another reason given for the slow progress in the internationalization of theyen pertains to institutional issues and problems concerning established practices of currencychoice in international transactions, such as trade and investment. It has been argued that demandfor the use of the yen remains low because of these unsolved problems. The following section isgiven to a review of these problems, and includes a summarization of the future outlook.
3. Examination of Institutional Issues and Problems Concerning Practices inCurrency Choice in International Transactions -- Possibilities for New Developments
(1) Currency Choice Based on "Economic Rationality"
[1] The actual choice of currency used in international transactions is based oneconomic rationality. Given that various established systems and practices are predicated on the useof dollars, parties in international transactions will make rational choices concerning theireconomic activities on the basis of this fact. Thus, many private businesses explain that theycannot conduct their overseas transactions in yen because "a shift to yen denomination will ineffect lead to higher costs." Specific reasons why foreign currency (dollar) denominatedtransactions are preferred include the following: foreign exchange costs can be reduced byconcentrating and marrying (maintaining neutral foreign exchange positions by balancing outstandingclaims and liabilities denominated in a foreign currency) of foreign exchange risks by the companyheadquarters; and, a foreign currency may be preferred in price strategies aimed at maintainingforeign market shares (dollar-denominated transactions facilitate profit maximization by stabilizinglocal prices and by maintaining a certain market share).
[2] Since the Asian currency crisis, many Asian countries have made the transitionfrom a virtual dollar-peg to more flexible foreign exchange regimes. Moreover, on the part of Japan,significant progress has been made in improving the general environment and enhancing theconvenience of the yen in financial and capital markets. Likewise, in the process of developingglobal management strategies, Japanese companies are paying greater attention to profits, costs andrisks. In view of the ongoing major changes in domestic and international economic conditions, it istimely to review conventional systems and practices and to re-examine the conventional"economic rationality" from new perspectives. In this context, it is notable that manyprivate businesses which until recently considered it only natural to conduct their internationaltransactions in dollars are now showing a greater interest in pursuing the possibility of the wideruse of the yen. This development reflects the following factors.
| 1) | With the termination of the dollar-peg of Asian currencies, local Asian companies have less reason to insist on the use of the dollar to avoid foreign exchange risks. Consequently, there is a growing tendency to switch from dollars to yen in various Japanese exports to Southeast Asia, such as auto parts. |
| 2) | Some Japanese companies have become more sensitive to reducing foreign exchange risks between time of contract and settlement, and are placing greater emphasis on the stability of financial statements. Among such companies, there is growing discussion that current financial strategies which transfer the full burden of foreign exchange risks to the company headquarters should be reviewed. These companies are beginning to examine the possibility of switching to yen-denominated financial statements by overseas subsidiaries and the use of the yen in transactions with subsidiaries. |
| 3) | Globalization and growing domestic and international competition has encouraged Japanese companies to adopt management strategies emphasizing profits and risks. As a result, there is a growing need to re-evaluate costs and risks pertaining to currency choice and to review current practices in currency choice. |
| 4) | Japan's ratio of manufactured imports is rising, and continued growth can be expected in develop-and-import strategies. These trends are conducive to the expanded use of the yen in imports. Likewise, yen-denominated development financing can be expected to grow in the future. As larger volumes of yen-denominated cash flow are generated, new opportunities will arise for promoting the internationalization of the yen. |
[3] Various reasons are given for the extensive use of foreign currencies inJapanese imports. For instance, it has been pointed out that exporters whose priority is profitstability will seek to enter into contracts in the currency which is the basis of their costs. Theconverse is true for exporters whose priority is to gain market share in Japan. To maintaincompetitiveness, such exporters will accept a higher level of fluctuation in profits while taking amore positive stance on yen-denominated transactions. Many of the European multinationalcorporations which denominate their exports to their Japanese subsidiaries in yen are doing so aspart of their strategies to develop their positions in the Japanese market. From this perspective,it will be necessary for Japan to become a more critical market for foreign countries. This meansthat Japanese markets must become more open to foreign companies and products, and that consumptionmust regain its former force.
(2) Absence of Direct-Trading Between the Yen and Asian Currencies
The Council's report takes up the question of why the ratio of yen-denominated tradebetween Japan and Asia is low (particularly, yen-denominated imports). One of the reasons given isthat mature markets are not available for direct-trading between the yen and Asian currencies,adding to the inconvenience of the yen. Exchange rates between the yen and Asian currencies arecurrently determined through arbitrated cross-rates; that is, they are computed on the basis of theU.S. dollar. Trading through the intermediation of the dollar has various drawbacks, such as highertransaction costs and higher settlement risks. Nevertheless, markets for direct-trading between theyen and Asian currencies have failed to develop. This failure can be attributed to the low volume ofyen-denominated transactions, the low volume of foreign exchange transactions between the yen andAsian currencies, and measures adopted by some countries of the region aimed at countering theinternationalization of their currencies. In any case, in order to develop direct-trading betweentwo currencies, it is necessary to have a high volume of transactions involving the two currencies.Thus, given the current low volume of foreign exchange transactions between the yen and Asiancurrencies, it can be said that an adequate foundation for the development of direct-trading marketsbetween the yen and Asian currencies is not available. Hence, the search for means to developdirect-trading markets must be predicated on efforts to increase the volume of yen-denominatedtransactions.
(3) Foreign Exchange Regimes of Asian Countries
[1] The dollar continues to account for a high percentage of internationaltransactions in the Asian region. Consequently, these countries have a strong interest instabilizing the rate of exchange between the dollar and their domestic currencies. For this reason,virtual dollar-peg regimes were very common in pre-crisis Asia. As a result, the rate of exchangebetween the yen and Asian countries tended to be unstable. This provided an important reason foravoiding the use of the yen.
[2] An important lesson gleaned from the Asian currency crisis was that dollar-pegregimes were inappropriate in view of the close economic ties that the region maintains not onlywith the United States but also with Japan. Consequently, many Asian countries have now discardedthe dollar-peg and are generally making the transition to more flexible exchange rate regimes. Inlight of growing intra-regional economic interdependence, Asia must now consider new exchange ratestabilizing mechanisms to achieve greater stability among its regional currencies. (One option is toadopt currency-basket systems. A summary of the report of the Sub-Study-group for Research onCurrency System concerning this issue appears on page 12 [Reference]).
(4) Problem of Liquidity in Government Bond Markets
[1] A critical prerequisite for the internationalization of a currency is theavailability of highly liquid capital markets (highly liquid markets for government bonds are ofparticular importance in the case of Japan). In reference to the issue of liquidity, Japan'sgovernment bond markets can be characterized as follows. 1) With the exception of 10-year bonds,bid-ask spreads for Japanese government bonds are larger than in other advanced countries. 2) Bondsare held in a combination of formats consisting of physical certificates, registration, and transfersettlement systems. 3) The ratio of bonds held by non-residents is low.
[2] Means to increasing market liquidity have been considered and implemented.Specifically, the following measures have been introduced since the Council's report: marketplacement of FBs, introduction of 5-year interest bearing government bonds, introduction of re-openmethods, review of taxes applicable to government bonds, and steps towards improvement of thesettlement system, including the introduction of real-time gross settlement systems in the Bank ofJapan settlement network.
(Note) The review of taxes applicable to government bonds led to the followingrevisions in the fiscal 2001 tax revision which went into effect on April 1, 2001. Tax exemptions oninterest payments to non-resident bond holders were expanded as follows. Under certain conditions,tax exempt status now applies to interest payments on bonds held by non-residents through globalcustodians. It is expected that this measure will promote the purchase of Japanese government bondsby non-residents, and in this way contribute to the internationalization of the yen.
(5) Problem of Inertia
The Council's report has pointed out that the choice of currency in internationaltransactions is subject to a form of inertia. That is, the decision of market participants to use acertain international currency that offers low transaction costs and high convenience leads to afurther lowering of its transaction costs and improvement in convenience. The advantages of thedollar tend to become an immutable given in an environment featuring various systems and practicespredicated on the use of the dollar. This inertial force of international currencies has a negativeimpact on the internationalization of the yen (because the yen is not extensively used, transactioncosts are high, which in turn further discourages the use of the yen). Hence, progress fails to bemade in the internationalization of the yen although it is capable of delivering various advantages,such as stabilization of the international monetary system and stabilization of the Asian economies.Taking into account the inertial problem, it is clear that Japan must make a long-term commitment tothe steady implementation of a wide range of initiatives in order to achieve the transition fromdollar-based to yen-based transactions. In addition to the previously mentioned improvements in thefinancial and capital markets designed to achieve enhanced convenience in the procurement andmanagement of yen funds, both the government and private sector must engage in an ongoing review ofestablished systems and practices and must examine the international use of the yen from newperspectives.
[Reference] Summary of Discussions Concerning Currency-Basket Systems
[1] One of the available options for the Asian countries is to link their currenciesto trade-weighted currency baskets containing the dollar, yen, euro and other currencies, whilemaintaining proper flexibility by adopting appropriate trading bands. A closer linkage of Asiancurrencies to the yen under currency-basket systems will serve to improve the relative stabilitybetween Asian currencies and the yen and can contribute to enhancing the role of the yen.
(Note) Various approaches to "currency-basket systems" are possible,including linkage of domestic currencies to a basket containing the dollar, euro, yen and othercurrencies, and a joint-adoption of a currency-basket system by two or more countries of the region.While the latter approach will be considered as a long-term possibility, the former type ofarrangement will be considered here as an immediate issue.
[2] When policy objectives are focused on stabilizing the GDP and current accountbalances, it has been argued that under certain circumstances, a currency-basket approach is moredesirable for the Asian countries than a single-currency peg or full-fledged floating exchange ratesystem. On the other hand, such an approach contains the following uncertainties and problems.
| (a) | In reality, the foreign exchange policy objectives may not be focused on stabilizing the GDP and current account balances. Instead, the monetary authorities may be targeting foreign exchange stability (or, the promotion of trade and incoming foreign direct investment through stable exchange rates). |
| (b) | Even if the monetary authorities wish to switch to an optimal currency-basket system, they may be deterred from acting on this choice by the fear that trade-competing neighboring countries will continue to peg their currencies to the dollar. |
| (c) | A currency-basket system is more complicated than a single-currency peg and may be more difficult to manage. |
The following rebuttals can be made to the above points. Regarding (a), theexperiences of the Asian currency crisis teach that the stability of the exchange rate solely withthe U.S. dollar cannot be regarded as an optimal medium- to long-term policy for Asian countries inan increasingly globalized economy. Regarding (b), this problem can be eliminated throughinternational policy harmonization and regional monetary and financial cooperation. Finally,regarding (c), the monetary authorities of countries that have actually adopted currency-basketsystems generally explain that management of the system is not difficult.
[3] In any case, the development of mechanisms for the achievement of exchange ratestability in the Asian region will require the following types of efforts: individual countries mustpromote appropriate macroeconomic and structural policies which are consistent with their exchangerate systems; and, greater efforts must be made to further strengthen intra-regional monetary andfinancial cooperation.
III. Promoting the Future Internationalization of the Yen
1. Future Challenges
(1) Revitalization of the Japanese Economy and Financial System and Continued MarketLiberalization
[1] The report of the Council on Foreign Exchange and Other Transactions containsthe following statement. "Japan has asserted its international presence through its economicpower. For this reason, the revitalization of the economy and the restoration of sound economicmanagement constitute essential conditions for the internationalization of the yen." Therefore,to enhance the status and acceptance of the yen as an international currency, the first and mostessential prerequisite is the restoration of domestic and international confidence in the Japaneseeconomy. The rebirth of Japan's economic and financial systems will require a line of action aimedat implementing thorough economic and fiscal structural reforms, including the disposal ofnon-performing loans, the development of a competitive economic system, and reform of the fiscalsystem.
[2] To promote the internationalization of the yen, it is necessary to increase theuse of the yen in international trade and capital transactions. For this purpose, it is important topress forward with structural reform and deregulation in order to stimulate domestic demand andincrease the volume of yen-denominated imports, and also to encourage incoming foreign directinvestments. Particularly, in connection with Asia, as stated in the Council's report, it isimportant to expand real economic relations with the Asian region through trade and capitaltransactions in order to increase the supply of yen to Asia and to develop a foundation for thecirculation of yen in international transactions. In this regard, following the joint statement ofthe Japan-Singapore summit meeting of October 2000, Japan has been actively negotiating withSingapore for the conclusion of the Japan-Singapore Economic Agreement for a New Age Partnership.Similarly, the Japan-Korea FTA Business Forum, consisting of members of the business communities ofthe two countries, is currently studying the possibility of formulating a bilateral free tradeagreement. In order to develop stronger ties with the Asian countries through regional trade andother agreements, it will be necessary for Japan to become more attentive to the views of the Asiancountries.
(2) Improving the Environment for Enhancing the Convenience of the Yen
[1] Issues pertaining to the convenience of the procurement and management of yenfunds have already been discussed, and pertinent measures are now being steadily implemented.However, it is vitally important to continuously implement measures designed to upgrade Japan'sfinancial and capital markets and its settlement system.
| 1) | In particular, it is necessary to improve the government bond markets which play a central role in the holding and management of yen funds by non-residents. As contained in the Council's recommendations, this will require active implementation of such measures as the introduction of stripped bonds, simplification of bond holding systems, and the review of withholding taxes on repo transactions by non-residents. |
| 2) | Various problems exist in Japan's securities settlement systems with regard to efficiency and security. For instance, separate clearinghouse and settlement institutions exist for different types of securities, and these operate according to different rules and settlement procedures. Similarly, Japan lags in the installation of paperless settlement systems. It is necessary to develop a unified securities settlement framework for CPs, corporate bonds and government bonds. A transfer settlement system based on such a framework must be studied and implemented promptly. |
[2] To promote the wider use of the yen in trade and capital transactions, it willbe necessary to establish foreign exchange markets for direct-trading of the yen and Asiancurrencies. However, this will not be easy to accomplish given current trading volumes. Hence,continuous efforts must be made to increase the volume of trading. Building on these results, thegovernment and private sector must seek out means to launching direct trading. The followingspecific measures should be contained in this line of action: increase the volume of yen-denominatedtransactions; continue efforts to improve the infrastructure for yen-denominated transactions; and,consider ways and means by which banks playing an active role in Asian foreign exchange markets canact as market-makers in foreign exchange trading between the yen and Asian currencies. There arevarious factors restraining the expansion of foreign exchange transaction volumes. These include theapplication of the real-demand principle, and policies in some Asian countries aimed at counteringthe internationalization of their currencies. It is hoped that these restrictions on foreignexchange transactions will be gradually eased.
[3] Efforts must be made to increase the share of yen-denominated bonds ininternational bond markets. This obviously requires the restoration of confidence in the yen andmeasures to expand the demand for yen funds. Regarding samurai bonds, the volume of issue hasrecently been increasing as a result of low Japanese interest rates. However, various proceduralproblems remain, including the need to prepare related documents in Japanese. The prompt eliminationof this obstacle will be difficult from the legal and investor-protection perspectives.Nevertheless, the increasingly globalized economic environment requires Japan to make positiveefforts to promote the internationalization of the yen.
[4] The convenience of holding yen in the foreign reserves of central banks must beenhanced. For this purpose, the Bank of Japan has taken such measures as automatic transfer ofexcess funds to short-term government securities (FB), and improved services to foreign centralbanks depositing their Japanese government bonds with the Bank of Japan, including measures toupgrade the liquidity of such holdings. It is hoped that these measures will contribute toheightening the incentive of foreign central banks to hold yen funds.
(3) Review of Currency-Choice Practices in Trade and Capital Transactions
Given the major changes in domestic and international economic conditions, it isnecessary to review established currency-choice practices in trade and capital transactions. Inparticular, it is believed that Japan's expanding volume of manufactured imports anddevelop-and-import methods provide good opportunities for increasing the ratio of yen-denominatedimports in the future. On the other hand, it is argued that Japanese companies do not have a realappreciation of the need to "internationalize the yen," nor are they fully aware of themedium- to long-term advantages that it would provide. Consequently, on the front lines of trade andinvestment, there is a tendency to accept the dollar as the de facto standard in internationaltransactions. Therefore, in addition to reviewing conventional currency-choice practices taking intoaccount changes in the domestic and international environment the domestic and internationalenvironment, it is hoped that Japanese companies will adopt the policy of using the yen in theirinternational transactions and will take proper measures to impress this policy upon their frontlines.
2. Relations with Asian Countries
(1) The report of the Council contains the following statement. "In promotingthe internationalization of the yen, the most realistic approach is to begin with efforts aimed atboosting the use of the yen in Asia where economic ties with Japan are strong." As such,promotion of the internationalization of the yen in Asia stands as a priority issue of immediateconcern. In pursuing this objective, special attention must be paid to the following point. TheAsian countries do not have an intrinsic interest in the internationalization of the yen per se.Rather, their interest is focused on how to promote the growth of trade and capital transactionswith Japan and other Asian countries in order to achieve sustained economic growth in anincreasingly globalized world economy. Therefore, the first subject that Japan must discuss with theAsian countries is: To achieve this objective, what forms of intra-regional cooperation should beimplemented, or what forms of intra-regional cooperation are possible, in the area of monetary andfinancial affairs? The review of the role of the yen in the foreign exchange regimes and trade andcapital transactions of the Asian countries should be discussed within such a framework of regionalcooperation.
(2) On the other hand, relations of economic interdependence are becoming extremelystrong within the Asian region. In the process of overcoming the difficulties created by thecurrency and financial crisis, a common awareness has emerged among Asian countries that thedevelopment of stable economic and financial systems necessary for the achievement of sustainedeconomic growth requires regionally coordinated efforts. At the informal summit meeting of ASEAN+3(Japan, China, Korea) held in November 1999, an agreement was reached on using the ASEAN+3 frameworkfor strengthening self-help and mutual support mechanisms for cooperation in monetary and financialmatters in East Asia. This agreement for an ASEAN+3 framework, which includes a China poised toenter the WTO and claiming an increasingly larger weight in the Asian economy, constitutes anextremely important first step towards the strengthening of Asian regional cooperation. As its firstconcrete action, the ASEAN+3 Finance Ministers Meeting in May 2000 formulated the Chiang MaiInitiative, pursuant to which effective bilateral swap arrangements were concluded between Japan andThailand, Korea and Malaysia in the recent ASEAN+3 Finance Ministers Meeting (held in May 2001).(See Attachment 2 for progress made in the Chiang Mai Initiative.) This intra-regional monetary andfinancial framework will be able to function as a preventive mechanism to avoid future currency andfinancial crises. Moreover, it is hoped that the framework will promote mutual understanding andfacilitate the intensive exchange of opinions concerning economic conditions among Asian countries.
(3) The countries of the Asian region represent a high level of diversity in termsof economy, history, culture, and social development. Taking this into consideration, it is clearthat efforts towards regional cooperation must involve a long-term perspective and commitment.Hence, it will be necessary to advance step by step while continuously engaging in dialogue andpromoting greater mutual understanding. On its part, Japan must continue to play an active role instrengthening intra-regional cooperation in the monetary and financial fields. Progress towardintra-regional cooperation is likely to create structural changes conducive to the expanded use ofthe yen in the Asian region.
3. Conclusion
Limited progress has been made in the internationalization of the yen since thebeginning of the 1990s. However, as pointed out in the report of the Council on Foreign Exchange andOther Transactions, the internationalization of the yen and the enhancement of its role cancontribute positively to international monetary and economic stability by promoting greater monetaryand economic stability in the Asian region. Hence, the internationalization of the yen can alsoultimately contribute to stabilizing the Japanese economy. As Japan's economic and financial systemsundergo the process of revitalization and further advances are made towards market liberalization,it is critically important to pursue the internationalization of the yen from a long-termperspective and with a commitment to persistent and unflagging efforts. Such vital endeavors mustinclude continued implementation of measures designed to enhance the convenience of the procurementand management of yen funds, encouragement of related parties to constantly review their establishedpractices pertaining to currency-choice in international transactions and to examine the use of theyen from new perspectives, and steady efforts to promote intra-regional monetary and financialcooperation in Asia.