Chinese Media Warns of Japan's Plaza Accord Lessons

(Bloomberg) -- As China and the U.S. prepare to resume trade talks, a Chinese state-run media outlet has reminded its readers of Japan’s economic plight after it agreed to U.S. demands in 1985.

That year, under pressure from the U.S., Japan signed the Plaza Accord, agreeing to strengthen its currency against the U.S. dollar. Rapid and steep yen appreciation and Japan’s domestic policy mistakes eventually brought about the nation’s "lost decade," according to an article published Friday by China’s official Xinhua News Agency.

The article, which didn’t mention the Chinese currency, came as China and the U.S. prepare for the first major negotiations in more than two months in an effort to head off all-out trade war. President Donald Trump has prodded China to offer more at the bargaining table.

"The currency and international trade are not only global economic issues, but also domestic political issues," the story said, after recounting the U.S. exporters’ lobbying efforts in the early 1980s. "Although it cannot solve fundamental issues of trade imbalance, the U.S. government always, again and again, looks for scapegoats."

Many economists blame the Plaza Accord -- which was also signed by France, West Germany and the United Kingdom -- and subsequent Bank of Japan rate cuts for worsening Japan’s asset-price bubble and the aftermath, a deflationary period.

The authors of the Chinese article said the currency intervention narrowed the U.S. trade deficit, but that it didn’t last long. Meanwhile, the Japanese companies relocated production abroad and expedited innovation, boosting their global competitiveness, they wrote.

"It’s worth learning from the lessons of the Japanese government, which inappropriately handled the changing situation, leading to serious consequences for the domestic economy. And from the Japanese companies which actively made adjustments to face the challenges," they said.

--With assistance from Douglas Huang.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Henry Hoenig, Brett Miller

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With assistance from Editorial Board