Exchange Rate Determination and the Yen-Dollar Rate

In response to a congressional request, GAO testified on issues raised by recent changes in the dollar's value on foreign exchange markets in general and by recent changes in the exchange rate between the American dollar and the Japanese yen. GAO has concluded that many variables, including the balance of trade, capital flows, differences between countries' national economic policies and economic conditions, and perceived political risks and expectations affect exchange rates. Looking particularly at the yen-dollar exchange rate, GAO has found no evidence to support charges that the Japanese Government has manipulated or artificially depressed the value of the yen, although recent Japanese actions have tended to strengthen the yen. In addition, GAO stated that, over the past decade, domestic economic policies and exchange rates have become more dependent on one another. Finally, GAO found that, although currency fluctuations have created genuine problems and some observers have called for modifying the floating exchange rate system, there is no consensus as to whether changes would be desirable and no agreement on what would constitute a better system.