THE EXCHANGE RATE IN THE JAPANESE ECONOMY: THE PAST,PUZZLES, AND PROSPECTS*

Selected topics in the literature on the exchange rate, in particular the yen, are reviewed from the viewpoint of some academic/practical puzzles. A survey is provided of past work covering use of the yen on PPP, covered and uncovered interest rate parity, the unbiasedness of expected future exchange rates, volatility spillover across borders and the effectiveness of intervention. The role of the yen in the international financial structure and its future role in global and regional financial markets are discussed.