Should Korea Worry About a Permanently Weak Yen?

39 Pages Posted: 31 Aug 2015

See all articles by Jack Ree

Jack Ree

International Monetary Fund (IMF)

Gee Hee Hong

International Monetary Fund (IMF)

Seoeun Choi

International Monetary Fund (IMF)

Date Written: July 2015

Abstract

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.

Keywords: Abenomics, Qualitative and quatitative easing, currency war, spillover, price pass-through, exchange, exchange rate, profit, exporters, market, Country and Industry Studies of Trade,

JEL Classification: E58, F14, F21

Suggested Citation

Ree, Jack and Hong, Gee Hee and Choi, Seoeun, Should Korea Worry About a Permanently Weak Yen? (July 2015). IMF Working Paper No. 15/158, Available at SSRN: https://ssrn.com/abstract=2653611

Jack Ree (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Gee Hee Hong

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Seoeun Choi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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