rate regime, while giving up ( 2 ) results in a fixed exchange rate regime. under a floating exchange rate regime, central banks conduct monetary policy independently based on domestic economic and price conditions. under independent monetary policy, the direction of individual economies'monetary policy differs in the short term depending on their own financial and economic conditions. that said, when the global economy as a whole is growing steadily, the direction of monetary policy in different economies tends to become similar, leading to a situation where exchange rate fluctuations are limited and exchange rates ultimately become close to being fixed. in fact, looking back over the past 50 years, periods of major economic swings caused by global crises such as the oil shocks, the bursting of various bubbles, the gfc, and the latest covid - 19 shock, have alternated with periods of relatively stable economic expansion under an accommodative financial environment. the former can be described as periods in which monetary policy tends to differ and the latter as periods in which monetary policy tends to become similar. since the transition to a floating exchange rate system, there have been constant advances in the liberalization of international capital flows. although, in the short term, capital flows sometimes have been highly volatile, from a long - term perspective, international capital flows have been relatively stable and growing steadily. the increasingly global nature of supply chains ( at least until the start of the covid - 19 pandemic ) reflects these free capital flows. in sum, the period of stable global economic growth can be characterized as one in which, although economies were able to pursue independent monetary policy and enjoy the benefits of free capital flows, the monetary policies they pursued ultimately were very similar. this can be interpreted as a situation in which, despite a floating exchange rate system, exchange rates were generally stable ( without any institutional constraints to fix exchange rates ). in fact, a glance at recent exchange rates shows that, while they may have fluctuated in the short term due to temporary fluctuations in capital flows, they have been stable in the long run. the fact that monetary policies in major economies have become increasingly similar may have contributed to this. it should be noted, however, that the expression " similar monetary policies " here does not simply refer to a shared policy stance in the direction of monetary easing. the reason is that differences across major economies in the strength of accommodative monetary policies, especially in response to a global crisis, can have economic spillover effects through the exchange rate. that is

facing a crisis of its financial system. 3 thus, although both japan and the united states implemented monetary easing policies, there was a substantial difference in scale, as seen, for example, in terms of the balance sheets of the boj and the federal reserve ( fed ). as a result, the yen appreciated against the u. s. dollar, which, coupled with the evaporation of global demand, led to weak exports, slow domestic growth, and deflationary tendencies. the analysis in this article assesses the extent of monetary easing in terms of the growth in the size of central banks'balance sheets. figure 1 shows changes in the relative size of the fed's and boj's balance sheets, which serve as a proxy for the monetary base, from the end of 2007 onward. the period from 2008 to 2012 is denoted by the blue circle near the vertical axis. by the end of 2012, the fed's assets had expanded about 3. 3 - fold, while the boj's assets had grown only about 1. 4 - fold. the rapid appreciation of the yen in the period from 2008 to 2012 can thus be regarded as the result of diverging monetary policies in the two economies. even though the direction of monetary policy - - toward easing - - was the same in japan and the united states, their magnitude differed greatly, leading to substantial changes in the exchange rate. this period can be regarded as an unintended regime change caused by the fed's massive monetary policy accommodation. figure 1 : relative developments in the fed's and boj's balance sheets ( total assets, log scale ) fed's total assets ( end of 2007 = 1 ) regime 3 regime 2 2014 2015 regime 1 boj's total assets ( end of 2007 = 1 ) notes : 1. the figure for 2020 is as of september 30. 2. regime 1, regime 2, and regime 3 refer to the periods 2008 - 2012, 2013 - 2016, and 20162019, respectively. figure 2 : exchange rate yen / u. s. dollar regime 2 regime 3 regime 1 20 cy 2013 - 2016 ( regime 2 ) : substantial monetary policy regime change to catch up with the united states the introduction of quantitative and qualitative monetary easing ( qqe ) by the boj in 2013 represents a significant monetary policy regime change. the boj embarked on an expansionary policy, which closed the gap vis - a - vis u. s. monetary