Exchange rate: refers to the exchange rate or price comparison between different currencies, that is, the price of one currency expressed in another currency. According to different methods of exchange rate setting, it can be divided into: basic exchange rate and arbitrage exchange rate. Basic exchange rate: It is the exchange rate between a country's domestic currency and its base currency (key currency). Arbitrage exchange rate: It is the exchange rate between the local currency and non-key currencies calculated on the basis of the basic exchange rate. At present, the exchange rates published daily in the foreign exchange markets of various countries are the exchange rates between various currencies and the US dollar. The exchange rates between non-US dollar currencies need to be calculated through the US dollar.

Appreciation: It is an increase in the external value of a country's currency due to changes in supply and demand in the foreign exchange market.

Depreciation: It is the decline in the external value of a country's currency caused by changes in the supply and demand relationship in the foreign exchange market.

Case of Japanese Yen Appreciation

After the disintegration of the Bretton Woods system in the 1970s, the Japanese yen began to implement a managed floating exchange rate system. The exchange rate of the Japanese yen against the U.S. dollar increased from 360:1. The fixed low appreciated to 240:1. However, the U.S. government was still dissatisfied with such a sharp increase in the value of the yen. It appointed Treasury Secretary Baker to convene the finance ministers of the five major Western countries to reach the "Plaza Agreement" on September 22, 1985. The core content was to regulate the foreign exchange market. * The same intervention caused the currencies of the other four countries, especially the Japanese yen and the German mark, to appreciate.

Under pressure from the United States, the Japanese government and the Bank of Japan "faithfully" fulfilled the "Plaza Agreement" and began to join the United States in large-scale intervention in the Japanese yen currency market. The Japanese yen exchange rate against the US dollar subsequently rose sharply. Soon It broke through 200:1 at the end of 1985, exceeded 150:1 at the beginning of 1987, and approached 120:1 at the beginning of 1988. This means that in less than two and a half years, the yen has fully doubled in value against the US dollar.

The rapid expansion of Japan's export trade is partly based on the low exchange rate of the yen. Therefore, the yen was forced to appreciate sharply after the "Plaza Accord". The direct consequence was that Japan's foreign trade was severely hit, so that the Japanese economy, which relied heavily on external demand, soon fell into a "yen appreciation depression" (meaning Japan depression caused by the appreciation of the yuan).

In order to get rid of the depression caused by the appreciation of the yen, the Japanese government and the Bank of Japan have adopted a series of powerful policy measures. One of them is the launch of an unprecedented post-war "financial easing" policy. The Bank of Japan lowered interest rates five times in a row, lowering the official interest rate to an "ultra-low" level of 2.5%. Against the background of the comprehensive promotion of financial liberalization and the shrinking demand for funds in the real economy, a large amount of excess funds caused by ultra-low interest rates have poured into the stock market and real estate market. As a result, the economic bubble centered on rising stock prices and land prices has expanded rapidly. By the early 1990s, the economic bubble triggered by the appreciation of the yen suddenly burst, and the Japanese economy fell into an unprecedentedly severe recession, from which it has still not been able to completely emerge from the recession.

Starting with the "Plaza Accord" that forced the yen to appreciate, after years of hard work, the United States finally defeated its largest competitor in the international economic and trade field.

---Excerpted from an article by Jiang Ruiping, Director of the Economics Department of China Foreign Affairs University, published by the People's Daily