Study Group for the Promotion of
the Internationalization of the Yen

Report

June 27, 2001

I. Follow-up on the Report of the Council on Foreign Exchange and Other Transactions

• The Study Group for the Promotion of the Internationalization of the Yen was set in the International Bureau of Ministry of Finance in September 1999 to follow up on the recommendations of the Council on Foreign Exchange and Other Transactions (former) contained in its report of April 1999, and to conduct surveys and research on necessary measures to promote the further internationalization of the Yen, in a total of eleven meetings held since its formation.

• Various measures for the promotion of the internationalization of the Yen were undertaken after the submission of the Council's report.

II. Recent Progress in the Internationalization of the Yen

• Regarding the progress made in the internationalization of the yen, a review of the statistics indicates improvement in some areas. However, on the whole, the situation has not changed since the Council's report was released.

• Various reasons can be given for the recent lack of progress in the internationalization of the yen: the question of confidence in the Japanese economy, the remaining low of demand for the use of the yen.

• The actual choice of currency used in international transactions is based on economic rationality and as a result, dollar dominated transactions are prevalent. However, in the view of the ongoing major changes in domestic and international economic conditions, it is notable that many private businesses are now showing a greater interest in reviewing dollar dominated systems and pursuing the possibility of the wider use of the yen.

III. Promoting the Future Internationalization of the Yen

• To enhance the status and acceptance of the yen as an international currency, the most essential prerequisite is revitalization of the Japanese Economy and Financial System, continued Market Liberalization, and improving the Environment for Enhancing the Convenience of the Yen.

• It is argued that Japanese companies do not have a real appreciation of the need to "internationalization of the yen", nor are they fully aware of the medium- to long-term advantages that it would provide, as a background of dollar dominated transactions in most of the international transactions. It is hoped that Japanese companies will adopt the policy of using the yen in their international transactions and will take proper measures to impress this policy upon their front lines.

• The interest of the Asian countries is focused on how to promote the growth of intra-trade and capital transactions in order to achieve sustained economic growth. The review of the role of the yen in the foreign exchange regimes and trade and capital transactions of the Asian countries should be discussed within regional cooperation. Progress toward intra-regional cooperation is likely to create structural changes conductive to the expanded use of the yen.

• The internationalization of the yen can contribute positively to international monetary and economic stability by promoting greater monetary and economic stability in the Asian region. Hence, the internationalization of the yen can also ultimately contribute to stabilizing the Japanese economy. It is critically important to pursue the internationalization of the yen from a long-term perspective and with a commitment to persistent and unflagging efforts.