How the U.S. Crashed Japan’s Economy Without Going to War
On September 22, 1985, five finance ministers met in a New York hotel room. No press. No public. No vote. The deal they made in one afternoon doubled the value of the Japanese yen, lit the fuse on the biggest asset bubble in history, and cost Japan three lost decades. And the same argument is happening right now.
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The Plaza Accord is the most consequential financial agreement most people have never heard of. By 1985, the US dollar had surged 50% against major currencies, driven by Paul Volcker’s 20% interest rates and Reagan’s deficit spending. American exports were being priced out of global markets. The US trade deficit hit a record $122 billion. Congress was ready to pass protectionist legislation.
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Rather than tariffs, US Treasury Secretary James Baker organized a secret meeting with the G5 finance ministers at New York’s Plaza Hotel. The agreement: coordinate to weaken the dollar. Within two years, the yen had doubled in value against the dollar — from 240 to 120 yen per dollar. American exporters got their relief. Japan got the bill.
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To offset the damage to its export economy, the Bank of Japan slashed interest rates to 2.5% — the cheapest money Japan had ever seen. That cheap money flooded into land and stocks. The Nikkei tripled. Tokyo land prices rose 300%. And then, when the Bank of Japan raised rates in 1989, the bubble collapsed. Three lost decades followed.
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In 2026, the United States is running large trade deficits again. Accusations of currency manipulation are back. The Plaza playbook — coordinate currency movements or threaten tariffs until the other side agrees — is being openly discussed in policy circles. This video explains the mechanism, the history, and why understanding 1985 is essential for making sense of what is happening right now.
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