ECONOMIC RESEARCH CENTERDISCUSSION PAPER

No.156

Exchange Rate Policy Coordination
Among
China, Japan, and Korea
by
Inchul Kim

September 2005

ECONOMIC RESEARCH CENTERSCHOOL OF ECONOMICSNAGOYA UNIVERSITYExchange Rate Policy Coordination
Among
China, Japan, and Korea*

Inchul Kim**

Abstract

In this paper we argue that the three countries in East Asia should make joint efforts toachieve a long-term goal of currency union. We also argue that in order to achieve thislong-term goal, the three countries should conduct exchange rate policy coordination basedon the medium-term exchange rate target range of each country. Exchange rate policy
within a country is closely related to its inflation targeting, and the government authorities
should make sure that these two policies be consistent with each other. In each country it is
the ministry of finance that conducts exchange rate policy whereas it is the central bank thatstrives to attain the inflation target. Therefore, we argue that the ministry of finance and thecentral bank should coordinate these two policies for the nation before the three countries
coordinate their exchange rate policies for the region.

1

JEL classification: F31, F36, F41, and F42
Key words: the exchange rate target range, inflation targeting, the realeffective exchange rate, and the Asian Currency Unit.

•

This paper was written in the summer of 2005 when I was a visiting scholar of Economic
Research Center (ERC), Nagoya University, Japan. I am grateful to ERC for allowing me touse its superb research facilities. I greatly thank Professor Yuko Arayama for his warm
hospitality and for helping me with my research work from the beginning. I also thank Mr.
Yasuhiro Doi for his efficient research assistance. However, I am sorely responsible for any
errors that may remain in this paper.

2

I. Introduction

During the period of the fixed exchange rates (1944-1971), the exchange rate wasone of the most important policy instruments for developing countries, and a large volumeof research work was made on the effects of exchange rate policy. During the floatingexchange rate period, however, scholars and practitioners turned their attention to the issuesof exchange rate volatility.

In the 1990s, they focused on the issues of nominal income targeting or inflation
targeting. Taylor (1993) proposes a rule that the central bank adjusts the real interest rate in response todeviations in the rate of inflation and the level of real output from their targeted levels. Svensson (1997)
argues that it is optimal for a central bank to target the inflation rate if price stability is the main goal ofmonetary policy. In Ball (1997), policy makers face a loss function involving the variances of inflationand output. Ball argues that nominal income targeting is a disastrous strategy of monetary policy.
Guender (1998) finds that the alleged instability of nominal income targeting in the backward-looking
model disappears if the policymaker chooses to adopt a hybrid nominal income target. Jensen (1999)
argues based on the forward-looking behavior of private agents that if society does not have theinflation-output gap trade-off, inflation targeting is preferable.

While focusing on inflation targeting, researchers began to examine the relationship between theexchange rate regime and inflation targeting. Petursson (2000) finds that when monetary policy is basedon an inflation target, no formal intermediate target such as a fixed exchange rate or specified growth inmoney supply is used. Orr, Scott, and White (2001) discuss aspects of the role of the exchange rate in
the case of New Zealand’s inflation targeting regime.

3

In this paper we focus on exchange rate targeting in the regional context. We attempt to derive atheoretical relationship between exchange rate targeting and inflation targeting, and argue that becauseof real shocks, range targeting is desirable instead of point targeting. Furthermore, we analyze mediumterm exchange policy coordination among China, Japan, and Korea. Also we argue that this exchange
rate policy coordination must be consistent or compatible with their long-term goal of currency union.1

II. The Model of Exchange Rate Range Target
In this section we develop a model of exchange rate range targeting by using money market
equilibrium and purchasing power parity condition. Equation (1) is money market equilibrium.

M = KPy ,----- (1)where M, K, P, y refer to the nominal money supply, an institutional factor including the velocity ofmoney, the price level and circulation real income. If we take the percentage change of each variable,
Equation (1) turns into Equation (2).

µ =π + g----- (2)If the time horizon we consider is a short-term or mid-term, the percentage change in ‘K’ iszero. Then inflation rate can be expressed as the sum of money growth rate minus income growth rate.

1

Allan Meltzer (2002) and Mourice Obstfeld (2002) argue that small and open economies should adopt

fixed rate regimes or join a currency union.

4

Equation (2) implies that the target inflation rate is determined by money growth rate and income growthrate.

<Figure 1> Determination of the Inflation Target Range
45°

µ

g0
g1
0

π0

π1

π

The inflation rate fluctuates between π 0 and π 1 as the GDP growth rate
moves between g 0 and g1 . GDP growth rate is easily affected byunanticipated internal and external shocks.

Based on Equations (1) and (2), we can find the target range for inflation. Figure 1 illustrates
this. The horizontal axis measures inflation whereas the vertical axis the money supply growth rate. If
the central bank fixes the money supply growth rate, the real GDP growth rate determines the inflation
rate. Real GDP growth is affected by internal and external shocks such as political instability, climatechange, and drastic changes in the price of oil. These shocks make real GDP fluctuate. Therefore, thecentral bank needs to have the range target for inflation. As shown in Figure 1, once money supply
growth is set at µ , then real GDP growth ‘ g 0 ’ determines ‘ π 0 ’. If ‘ g 0 ’ falls to ‘ g1 ’, inflation
increases to ‘ π 1 ’. If the central bank raises money supply growth, the scale of the inflation range
increases.

5

Now let us consider how the change in the exchange rate is related to money supply and realGDP. For this task, we use the money market equilibrium condition for the foreign country as in (3) andthe purchasing power parity which links up the price levels of the two countries as in (4).

µ* = π * + g *------ (3)P = SP *------ (4)π = e+π *------ (5)If we take the percentage change of each variable in (4), we get (5), where π, e , and π* refer todomestic inflation, percentage change of the exchange rate, and foreign inflation respectively. Using (2),(3), and (5), we can derive (6)( µ − µ *) = e + ( g − g *)------ (6)e = π − π * = ( µ − g ) − ( µ * − g *)------ (7)Figure 2 indicates that both relative money supply and relative GDP growth in the twocountries affect the medium-term exchange rate target. Domestic central bank can seldom control
foreign money supply and foreign real growth but can control domestic money supply. Given foreign
money supply and foreign GDP growth, the domestic central bank can forecast the future exchange rate
based on its monetary policy. If domestic real GDP fluctuates due to shocks, the exchange rate is also
moving up and down.

6

Figure 2. Money Growth Targeting, Inflation Targeting, and Exchange Rate Targeting

µ−µ*
µ −µ*
g1 − g *e
g2 − g *e1

e2

Given foreign money supply growth ( µ * ) and foreign GDP growth ( g * ),domestic money supply ( µ ) and domestic GDP growth determine theequilibrium exchange rate change. Fluctuations of GDP growth between g1
and g 2 yield the range of e1 and e2 for the exchange rate change.

III. Analysis of an East Asian Currency Union

After the 1997 Asian currency crisis, many countries have been accumulating
foreign reserves to prevent occurrence of another currency crisis. Still, most of them areworried about reoccurrence of currency crises. Mundell (2002), a Nobel laureate endorses
a currency union for East Asia. Other scholars and practitioners suggest that small andopen economies should join a currency union. This was one of the conclusions drawn at aninternational conference organized by the Bank of Japan in July 2002. The participants
focused on the exchange rate regimes of developing countries. Advocates of a currency
union argued that in order to maintain stable export earnings, developing and emerging

7

countries need exchange rate stability, and that regional currency integration will make itpossible.
There are two major sources of exchange rate stability. One stems from theinstability of the numeraire currency, currently de facto, the U.S. dollar. The other comesfrom each country’s competitive devaluation policy. In spite of its potential and actual
instability, the U.S. dollar plays a role of anchor currency. A lion’s share of the world’s
business contracts is drawn in U.S. dollars. Whether they like it or not, most developing
countries peg their currency to the dollar. Therefore, when the dollar value changes, it
affects many other countries in the world. A small change in the dollar value may notaffect the countries in the euro zone. However, it may have a critical impact on a small
developing country. This is why small and open economies need to form a currency union.

The exchange rates of developing countries can be much more volatile than large
countries because of competitive exchange rate policies within a region.

In order toincrease their share in the export markets, their government has strong incentive toimplement trade protection policy including exchange rate devaluation.

If membercountries establish a regional currency union, they will have a built-in exchange ratestabilizer and with group floating, they can maintain the same degree of competitivenessamong member countries.

The 1997 Asian currency crisis teaches us many lessons. A currency crisis is very
contagious and neighboring countries are affected quickly and critically. Countries with a8high short-term debt ratio and large external debts, and open economies with less developed
capital markets easily become the targets of currency speculation. So these economies needto join a regional currency union. They are often advised to adopt flexible exchange rates
to prevent currency crises. While admitting the merits of flexible exchange rates, theycannot adopt it right away because they do not want to give up on stable export earnings.
Instead of flexible exchange rates, they have made currency swap arrangements withneighboring countries and have been accumulating large amounts of foreign reserves.

<Figure 3> Classification of Exchange Rate Regimes
Free Market Float

Direct Float
Generalized
Floating
SystemGroup Float

Currency UnionManaged Float
DollarSingle Currency Peg
Indirect Float

Euro
Yen
Major
Currencies

Basket Currency Peg(Dollar,Yen,Euro)
Trade Partner
Currencies

Figure 3 shows the options of exchange regimes for both developed anddeveloping countries. Eichengreen (2000) discusses the appropriate exchange rate regimes
for emerging countries.

9

Large economies such as the U.S. and Japan adopted the freely floating system. European
countries had adopted the group float regime before they reached a single currency. Some countries
adopted managed floating and others adopted either a single currency peg or a basket-currency peg. Last
July 2005, China switched from its de facto the dollar peg to a basket-peg system. Korea’s exchange rate
regime can be classified as the market-based floating system but the market is limited in scale. Koreancurrency is traded in the foreign exchange markets only inside the country.

To form a currency union for any region requires extensive amounts of preparation. It took
European nations more than a few decades to reach the stage of single currency. They went throughseveral transitional steps before they establish a full-fledged integration of their currencies, including theEuropean Monetary System, European Currency Unit, and European Exchange Rate Mechanism. East
Asia can follow the European experience of currency union but cannot, and, perhaps, should not copy it
exactly due to differences in economic, political, and social systems.

Before reaching the stage of single currency, East Asia may create an Asia Currency Unit or
establish an Asian Exchange Rate Mechanism at which the currencies of member countries are pegged
to the anchor currency. According to Kawai (2005), it is desirable for East Asia to seek currency
stability by way of adopting a “G3 currency basket system” composed of the yen, the dollar, and theeuro – excluding the yuan due to its lack of convertibility. In establishing an East Asian currency union,
three countries of China, Japan, and Korea should jointly take the initiative step. This task requires along-term preparation work. The three countries need to set up a three lateral preparation committee andits secretariat office. They should make plans to establish regional financial organizations including the
Asia Monetary Fund and regional development banks.

10IV. Analysis of Regional Exchange Rate Policy Coordination

While taking steps towards a long-term goal of currency union, three countries need to
conduct exchange rate policy coordination. First of all, they must make sure that the currencies ofmember countries be resilient from external currency shocks. They should prepare measures to prevent
speculative currency attack and extend swap agreements. They will continue to develop bond markets inEast Asia. Secondly, they must maintain exchange rate stability with the region. They should coordinate
the policies of the three countries in such a way that they may maintain the same parity with theircommon anchor currency. The policies include not only exchange rate policy but also other policies
including monetary policy.

As a guide for exchange rate policy coordination, we use Equation (7) again.

e = π − π * = ( µ − g ) − ( µ * − g *)------ (7)From Equation (7), we know that inflation directly affects the change of theexchange rate whereas monetary and growth policies indirectly affect the exchange rates. In conducting
exchange rate coordination, we must consider monetary and fiscal policies. In particular, we must
consider how inflation targeting is related to exchange rate coordination. For a small and open economy,
the price level may be expressed as in (8).

P = PTα PNβ ,------ (8)If we take the percentage change of each variable in (8), we get (9)11%∆P = α%∆PT + β%∆PN

where P , PT , PN , refer to the price level, the prices of traded goods, and the prices of non traded goods,
and α and β may represent weighs for the price index of the traded goods and for the price index of thenon traded goods. Unlike other equations in this paper, Equation (8) is a measurement definition. Thismeans that the price - level index is based on the prices of traded goods and the prices of non-traded
goods.

In order to relate the exchange rate to the domestic price level, we use Equation (10)PT = SPT*------ (10)If we take the percentage change of each variable in (10), we get (11)%PT = %∆S + %∆PT*------ (11)Combining (9) and (11) will give us a new inflation equation, (12)Π = α[%∆S + %∆PT*] + β%∆PN------(12)Based on Equation (12), we can state that a change in the exchange rate will affect thedomestic price level or inflation through the change in the price of traded goods. Also, a change in the12prices of foreign goods will affect inflation. In addition, a change in the exchange rate affects the pricesof the non-traded goods including the prices of services, which will, in turn, affect inflation.

V. Analysis of Why Three Countries

There are more than 20 countries in East Asia, and one may ask a question why three
countries, in particular, should take the lead in achieving the goal of currency union. First of all, theformation of a regional currency union is a long-time taking process and requires enormous amounts ofresources. Therefore, all countries in East Asia do not have incentive to join the task force. By contract
China, Japan, and Korea are three strongest economic powers in East Asia and they have resources andmanpower to plan for the future of East Asia. See major indicators for three countries contained in the
Appendix A. Secondly, the economic size of each of the three countries is substantially large and if East
Asia should encounter another currency crisis, they will be a big loser. So they need to take preventive
measures for their own sake. Thirdly, these three countries have been accumulating so much of foreign
reserves. Their foreign reserve holdings are excessive by any conventional standard. For Example, theforeign reserve to import ratio for each country has been rapidly rising since 1999. During the period
1999-2003, the ratio kept on increasing: 95%, 75%, 89%, 99%, and 99% for China; 83%, 99%, 128%,131%, and 160 for Japan; 62%, 60%, 73%, 80%, 87%, and 89% for Korea. (Appendix 1, 2, and 3) If
three countries become successful in mid-term exchange rate coordination and in the formation of acurrency union, they can reduce much of foreign reserve holdings.

13

<Figure 4>
The Growth Rate of Foreign Reserve Accumulation
60%
50%
40%

China
Japan
Korea

30%
20%
10%
0%
2001

2002

2003

2004

Fourthly, there is much more uncertainty in the beginning stage. If too many member
countries get involved in the decision-making process, no decisive actions can be undertaken. It will bemuch easier for countries to agree on any decision. Other countries can join the group later, when things
become more certain and they have a better prospect of their common goal. Last but equally important,while seeking their common goal, they can gain huge benefits by cooperating for the promotion of theirproduction and exports. Using the basis of differing distributions of income, each can expand its exports
and can increase complementary production relationships among the three countries.

14

100 million U.S. dollars<Figure 5>
The Trend of Foreign Reserve Holdings
by China, Japan, and Korea
9000
8000
7000
6000
5000
4000
3000
2000
1000
0

China
Japan
Korea

1995

2000

2001

2002

2003

2004

VI. Criteria for Exchange Rate Policy Coordination

In conducting exchange rate policy coordination, the three countries need to have common
guidelines. First of all, each country should adopt range targeting rather than point targeting forexchange rate policy. This point was discussed in V. It is partly because unexpected real shocks makeGDP growth rates shift and it is partly because exchange rate policy is constrained by other monetary
policies including inflation targeting.

Next question is what is the target exchange rate. Williamson (2003) suggested that eachcountry may use the concept of fundamental equilibrium exchange rate (FEER) in finding the target
exchange rate. He defines it as the value of the real exchange rate consistent with macroeconomic

15

equilibrium. The empirical measurement of FEER can vary with the country. The three countries needto have a consensus on the exchange rate target of each country.

The real effective exchange rate (REER) can be accepted as a useful guide for the exchange
rate target. The REER is a composite exchange rate index and can measure the overall value of acurrency. It is a weighted average of changes in the basket currencies. The basket currencies may
include major currencies that are easily convertible in the international foreign exchange markets such as
the dollar, the euro, and the yen. Changes in REER reflect how far a member currency deviates from its
initial equilibrium position and this can be the foundation over which three countries discuss the future
course of their exchange rate policy.

In discussing future exchange rate policy for each country, maintenance of harmonizedexchange rates must be the common ground. They wish to keep their currency value at a level at which
they maintain the same currency competitiveness against the non-member countries. Furthermore,comparing to the exchange rate in the base period, they want to maintain the same exchange rate withthe anchor currency – the U.S. dollar or the euro.

To attain the mid-term or long-term harmony in the exchange rate, member countries need tokeep balance between current account and capital account transactions. While the three countries
coordinate their medium-term exchange rate policy, they must share the long-term goal of a common
currency and of a currency union, and should make concerted efforts in taking step-wise measures
towards their long-term goal.

16

VII. Analysis of Goods Market Integration Among Three Countries
While three countries make joint efforts to achieve currency union and coordinate mid-term
exchange rate policy, they should try to integrate goods markets in East Asia. Without freer trade withina region, regional currency union does not mean very much. Yu (2005) argues that if there is no will in
the region for the creation of an East Asian Economic Community, any cooperation will be piecemeal
and half-hearted, and the endeavor of regional financial cooperation will lose steam easily. Kuroda(2004) introduces five steps towards an East Asian single currency: the first step is already on place by
way of the Chiang Mai Initiative; the second step taken is the Asian Bond Markets Initiative; the third
step is the free trade agreements; the fourth step is to establish intra-regional exchange rate stability, andthe last step is to create a common currency.
The rationale for the common currency and free trade is well understood among member
countries. In order to realize these tasks, member countries need to be persuaded about the benefits they
will gain. In this section, we analyze the potential benefits that accrue to member countries when they
form a regional trade bloc and integrate the region’s product markets. Negotiations of free trade
agreements (FTA) have been under way among member countries and not much progress has been made.
The leaders of smaller countries are afraid that their products may be driven out of market by the
products of large countries.
This is not necessarily true if one takes into account the merits of differing distributions ofnational income. Grubel (1970) explained intra-industry trade based on the theory of differing
distributions in the context of two countries. However, we apply this theory in the context of three
countries – China, Japan, and Korea. Through this framework, we point out that an FTA or any market
integration not only increases intra-regional as well as inter-regional trade for the region as a whole but
also it provides ample opportunities for smaller economies.

17

<Figure 6> Korea’s GNP Growth and Deepening Competition
between Japan and Korea under Market Integration
NumberofHouseholds

KR

K*R

JP

Two-Way Exports
between Japan and Korea

HouseholdIncomeWe assume that each country has a distribution of national income where high-income,middle-income, and low-income groups exist. Figure 6 shows two income distribution curves for Korea
and Japan. The two curves overlap with each other and yield a common range of household income.
The consumers falling into this range of income, whether they are Koreans or Japanese, are assumed tohave a similar consumption pattern. So producers of two countries make efforts to cater to thesecustomers. At this moment, competition between the Japanese and Korean producers increases but it
occurs in the extended market. When Korea’s GNP increases, its income distribution curve shifts to theright and the overlapping range extends. This means that the producers of the two countries will havemore opportunities to sell and that the consumers of the two countries will enjoy greater benefits. Bothconsumers and producers in the two countries can gain from market integration.

18

<Figure 7> Coexistence of Competition and Complementary
Production Relationships among China, Japan, and Korea

K

J

R
C

III-b

II-b

N

I

II-a

III-a

I: competition among China, Japan, and Korea
II-a: competition between Japan and China
II-b: competition between China and Japan
III-a: competition between China and non-member countries(Intra-regional complementary increases)
III-b: China can allow potential partner countries to compete with China.

Up to this point, it is not clear why a smaller country can gain with a high probability. Let us
now consider a third country, China. In Figure 7, China’s income distribution curve is drawn. We havemade the curve look much flatter than the other two in order to reflect a wider distribution of income in
China. Range I is the competitive market for three countries. Range II-a is the competitive market for
China and Japan. Range II-b is the competitive market for China and Korea. Range III-a indicates thecompetitive market for China and other higher-income countries. Range III-b is the competitive market
for China and other lower-income countries. Through this example, we can show that even a smaller
country can have ample opportunities if it considers the differing distributions of national income.
Furthermore, if these three countries create regional joint ventures by utilizing the merits of location,
labor cost, and technology, they can well compete with non-member countries.

19

VIII. Conclusion

We analyzed the rationale of the East Asia’s long-term goal of currency union andmedium-term exchange rate policy coordination. An individual currency in East Asia issubject to enormous impacts from external shocks. So they need to form a currency bloc tolessen the impact. They also need to maintain exchange rate stability by creating a regional
currency unit to which every member country’s currency is pegged. While making joint
efforts to reach the final stage of currency union, China, Japan, and Korea need to jointly
conduct mid-term exchange rate policy coordination. Through exchange rate range
targeting, three countries can maintain the exchange rate at a level consistent with one
another. When conducting exchange rate targeting, it may conflict with inflation targeting.
To keep inflation at the target band, proper monetary policy is to be implemented. If thecentral bank wants to lower inflation, it must tighten up its money supply. Then it will lead to an
appreciation of the domestic currency, which may jeopardize exchange rate targeting. Potentially there isan objective conflict between the ministry of finance and the central bank. This is because the ministry is
responsible for keeping the exchange rate at the target range whereas the central bank is responsible forkeeping inflation at a low level. Therefore, each country should coordinate domestic policies between
different agencies of the government while trying to coordinate exchange rate policy among the three
countries.

20

REFERENCES

Ball, Lawrence (1999), “Policy Rules for Open Economies,” in John Taylor (ed.),Monetary Policy Rules, University of Chicago Press, pp. 127-156.
Eichengreen, Barry (2000), “Can Emerging Markets Float? Should They Inflation Target?”unpublished manuscript, UC Berkeley.
Guender, Alfred (1998), Nominal Income Targeting vs. Strict Inflation Targeting: A
Comparison, unpublished manuscript, University of Canterbury, New Zealand.
Grubel, Herbert G. (1970), “The Theory of Intra-Industry Trade,” In Studies inInternational Economics, edited by I.A. McDougall and R.H. Snape, Amsterdam: North –Holland, pp. 35-51.
Hall, Robert E. and Mankiew, N. Gregory (1994), “National Income Targeting” in N.
Gregory Mankiew (ed.), Monetary Policy, University of Chicago Press, pp. 71-93.
Jensen, Henrik (1999), “Targeting Nominal Income Growth of Inflation?” University of
Copenhagen, CEPR, EPRU.
Kawai, Masahiro (2005), “Future of Asian Monetary Integration: A Dollar, Yen, or Yuan
Bloc?” Presented at the International Conference on Toward an East Asian Exchange Rate
Regime, Organized by the Forum on East Asian Monetary Cooperation held in Seoul.
Kuroda, Haruhiko (2004), “Transition Steps in the Road to a Single Currency in East Asia,”
Delivered at the ADB Seminar, A Single Currency for East Asia –Lessons from Europe,
Jeju, Korea.
Meltzer, Allan (2002), “New International Financial Arrangements,” Monetary andEconomic Studies, Bank of Japan, Special edition, vol. 20, pp. 11-22.
Mundell, Robert (2002), “Does Asia Need a Common Currency?” Pacific Economic
Review, pp. 3-12.
Obstfeld, Maurice (2002), “Exchange Rates and Adjustments: Perspectives from the New
Open-Economy Macroeconomics,” Monetary and Economic Studies, Bank of Japan,
Special edition, vol.20, pp. 23-46.

21

Orr, Adrian, A. Scott and B. White (2001), “The Exchange Rate and Inflation Targeting,”
Reserve Bank of New Zealand Bulletin, Vol. 61, No. 3, pp. 183-191.
Petursson, Thorarinn (2000), “Exchange Rate or Inflation Targeting in Monetary Policy?”
Monetary Bulletin, pp. 36-45.
Svensson, Lars (1997), “Inflation Targeting: Some Extensions,” NBER Working Paper,5962.
Taylor, J.B. (1993), “Discretion versus Policy Rules in Practice,” Carnegie-Rochester
Conference Series on Public Policy 39, pp. 195-214.
Williamson, John (2000), “The Choice of Exchange Rate Regimes for East Asia: Reviving
the Intermediate Option,” Policy Analysis in International Economics, No. 60, Institute forInternational Economics.
Williamson, John (2003), “The Renminbi Exchange Rate and the Global Monetary
System,” Delivered at the Central University of Finance and Economics, Beijing, China,
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22

Appendix 1: The Trends of China’s Major Indicators
1999

2000

2001

2002

2003

8,267.3

8,934.1

9,859.3

10,789.8

12,151.1

ExchangeRate

8.27958.27748.27688.27738.2767

GDP

998,466.
2

1,078,997

1,190,736

1,303,115

1,467,512

194,931249,203

266,098

325,591

437,899

165,699

225,094

243,553

295,171

413,062

Foreign
Reserves(mill. US
Dollar)157,728

168,278

215,605

291,128

408,151

FR/GDP

15.8%

15.6%

18.1%

22.3%

27.8%

FR/IMP

95.2%

74.8%

88.5%

98.6%

98.8%

GDP

2004

2005
7.22

8.2765

8.11(bill. yuan)(mill. US
Dollar)

Exports(mill. US
Dollar)Imports(mill. US
Dollar)23

Appendix 2: The Trends of Japan’s Major Indicators
1999

2000

2001

2002

2003

2004

GDP

507,724

511,462

505,847

498,276

497,821

ExchangeRate

102.20114.90131.80119.90107.10GDP

4,967,945

4,451,366

3,837,989

4,155,763

4,648,188465,254449,513

371,851434,604

509,328

587,639

345,108

356,092

321,715

351,768

413,810472,023

286,916354,092

395,155

461,186

663,289

833,891

FR/GDP

5.8%

7.95%

10.3%

11.1%

14.3%

FR/IMP

83.1%

99.4%

127.8%

131.1%

160.3%(bill. yen)104.12(mill. US
Dollar)

Exports(mill. US
Dollar)Imports(mill. US
Dollar)Foreign
Reserves(mill. US
Dollar)24

167.7%

Appendix 3: The Trends of Korea’s Major Indicators
1999

2000

2001

2002

2003

2004

GDP
(bill. won)

529,500

578,665

622,123684,263724,675

ExchangeRate

1,138.0

1,264.50

1,313.50

1,186.20

1,192.60

GDP(mill. US
Dollar)465,290457,623.6

473,637.6

576,853

607,643

Exports

143,686

172,268

150,439

162,471

193,817

253,845

119,725

160,481

141,098

152,126

178,827

224,463

73,987.3

96,130.5

102,753.3

121,345.2

155,284.2

198,996.6

FR/GDP

15.9%

21.0%

21.7%

21.0%

25.6%

FR/IMP

61.8%

59.9%

72.8%

79.8%

86.8%

1,035.10(mill. US
Dollar)Imports(mill. US
Dollar)Foreign
Reserves(mill. US
Dollar)25

88.7%