500 Yen (Governmental Cabinet System) – Japan

In 1985, Japan's currency situation was dominated by the dramatic and coordinated international effort known as the Plaza Accord. The agreement, signed in September at New York's Plaza Hotel by the finance ministers of the G5 nations (the US, Japan, West Germany, France, and the UK), aimed to correct what was seen as a severe misalignment of major currencies, particularly the overvalued US dollar. The yen was a primary target, as it was considered significantly undervalued, giving Japanese exporters a massive competitive advantage and contributing to large and growing trade imbalances, especially with the United States. The explicit goal was to engineer an orderly depreciation of the dollar through concerted foreign exchange intervention.

The immediate impact of the Plaza Accord was swift and profound. The yen, which had been trading at roughly 240 to the US dollar in the months leading up to the agreement, began a historic and relentless appreciation. Within two years, it would roughly double in value, reaching around 120 yen to the dollar by 1988. This sharp rise, or endaka, presented a severe challenge to Japan's export-driven economic model, as it made Japanese goods like cars and electronics more expensive overseas and squeezed corporate profits. The Japanese government and the Bank of Japan responded with aggressive monetary easing, slashing interest rates to counter the deflationary pressure of the strong yen and to stimulate domestic demand.

Consequently, the currency situation of 1985 set in motion a chain of events with far-reaching consequences. The combination of a soaring yen and ultra-low interest rates, intended as a short-term remedy, created a massive surplus of cheap capital. This liquidity flooded into financial assets and real estate, fueling rampant speculation and inflating a colossal asset-price bubble in stocks and property. While the Plaza Accord successfully reduced the US trade deficit, its aftermath in Japan was the genesis of the "bubble economy" of the late 1980s, which would eventually collapse and lead to the country's "Lost Decade" of economic stagnation in the 1990s. Thus, 1985 stands as a pivotal year where currency policy directly reshaped Japan's economic trajectory for decades to come.