By orchestrating a massive appreciation of the yen in the mid-1980s, the US condemned Japan to decades of stagnation and ended the challenge to its own economic hegemony. Effectively Japan was forced to commit financial hara-kiri.
This theory, once confined to Japan’s nationalistic fringe, is now being used by the Chinese authorities to justify their resistance to a substantial revaluation of the renminbi. By so doing they are misdiagnosing Japan’s woes and misperceiving the true threat to their own economy. The threat to China does not lie in an appreciating currency but elsewhere.
Here’s what happened in the case of Japan. In the Plaza Accord of 1985 the G7 attempted to address global imbalances – worrying then, but small beer by today’s standards – by “encouraging” significant changes in currency parities. They got what they wanted. The yen took off and never looked back.