During the 1980s and 1990s, Japan had a very large trade surplus with most countries....
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During the 1980s and 1990s, Japan had a very large trade surplus with most countries. Japans Ministry of International Trade and Investment proposed that firms be given a tax credit equal to 5% of the value of its increased imports. The purpose of this tax subsidy is to encourage Japanese imports of foreign products and thereby reduce Japan's persistent trade surplus. At the same time, the Japanese government announced that it will reduce its budget deficit during the coming year. How would this tax subsidy plan in conjunction with the reduced budget deficit impact Japan's trade balance and the value of its yen?
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