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For some reason, I've been spending a lot of time talking about the
"interwar" period, 1920-1940.
During World War I, Japan, following the example of most all governments in
the world, suspended redeemability and floated the yen in 1914. It looks like
the yen was nevertheless kept essentially linked to the dollar, however. The
dollar, like the pound, was also effectively floated, and sank in value.
March 25, 2012: The U.S. Dollar
During WWI and the Recession of 1920
April 15, 2012: Foreign Exchange
Rates 1914-1941
Here's what the yen/dollar exchange rate looking like in those days. Although
our data starts in 1916, I think the yen's prewar gold parity and thus
yen/dollar exchange rate was just about 2.0 yen to the dollar, or a yen worth
50 U.S. cents.
The yen takes something of a dive in 1923, related to the Great Kanto (Tokyo)
Earthquake of September 1, 1923.
Wikipedia on the Great Kanto Earthquake
This is remedied soon after, with the yen really just returning back to near
its prewar dollar (and gold) parity. However, the yen continued to float, and
sank in value somewhat around 1927, probably related to a financial crisis at
that time.
Wikipedia on 1927 Showa financial
crisis
Eventually, the government decided to formally return to a gold standard
system, and did so in January 1930. This shows up as the straight line
period.
The yen was devalued in December 1931, soon after the British pound was
devalued, and remained a floating currency afterwards although it remained in
a rough trading band. The yen then rises vs. the U.S. dollar, but that was
because the dollar was in turn being devalued, from $20.67/oz. of gold to
$35/oz. during that year.
Here's what the yen's value looked like vs. gold. This assumes a stable
$20.67/oz. dollar value during WWI, which, as described, was not actually the
case. It is fairly
accurate from 1923 onwards.
As we see, the big devaluation was in 1931. Afterwards, the yen had a pretty
stable value vs. gold, although it remained a floating currency without a
formal gold parity.
Rather too much is made of the return to a formal gold parity in 1930. This
did involve a slight increase in the yen's value, back to (presumably) a
prewar parity, but it was pretty small. The ten-year average value of the yen
at the beginning of 1930 was 22.4725 oz. of gold per 1000 yen. The 1930
parity value was about 23.90 oz. per 1000 yen. In other words, the new gold
parity was only 6.3% higher than the ten-year average. This was not really a
big deal, and was not responsible for any major disasters. The Keynesians
like to make a big huff about it, but they always do that.
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