Should Korea Worry about a Permanently Weak Yen?

By Jack J Ree, Gee Hee Hong, Seoeun Choi

July 16, 2015

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Jack J Ree, Gee Hee Hong, and Seoeun Choi. Should Korea Worry about a Permanently Weak Yen?, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Three years have passed since the Bank of Japan’s asset purchase program was introduced in 2011, causing a sharp decline in the value of the Japanese Yen. What would be the implications for Japan and Korea’s exporters if the weak Yen is here to stay? We explore this question by examining exporters’ pricing behaviors and volume responses to exchange rate shocks. We find that if the weak Yen persists, it would strengthen Japan’s price competitiveness over time as export prices respond with a lag. We also find that while direct boosts to export demand will be rather limited, a persistently weaker Yen would expand the Japanese exporters’ profits lastingly, which could reinvigorate the ability, particularly of flagship exporting firms, to compete and grow in the global market over time. These findings suggest that the muted price and volume response so far to the sustained weakness of the Yen may mask a more fundamental shift in the relative competitiveness of Japanese and Korean exporters.

Subject: Depreciation, Exchange rates, Export prices, Exports, Foreign exchange, International trade, National accounts, Prices, Real effective exchange rates

Keywords: Abenomics, Cost saving, Currency war, Depreciation, Exchange rate, Exchange rate shock, Exchange rates, Export, Export prices, Export volume, Exports, Global, Import price effect, Investment decision, Japan, Market share, Pass-through effect, Pass-through relationship, Price, Price competitiveness, Price pass-through, Qualitative and quatitative easing, Real effective exchange rates, Spillover, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/158
Stock No:

WPIEA2015158
ISBN:

9781513510835
ISSN:

1018-5941

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