| The Japanese currency has recently weakened past 100 yen to the dollar, leading to some criticism that Japan is engaging in a “currency war.” The reason for the recent depreciation of the yen is the expectation of higher inflation in Japan, owing to the rapid projected growth in Japanese base money, the sum of currency and commercial banking reserves at the Bank of Japan. Hamada (1985) and Hamada and Okada (2009) among others argue that in general, the expansion of the money supply or the credible announcement of a higher inflation target does not necessarily constitute a “currency war”. We show through our empirical analysis that expansionary Japanese monetary policies have generally helped raise U.S. GDP, despite the appreciation of the dollar. |