A Yen for Change: The strong yen and the Japanese automobile industry

The yen depreciation since 2012 has not revived Japanese exports. To investigate why, this paper examines automobile exports. Panel regression evidence points to price elasticities exceeding unity. However, out-of-sample forecasts and other evidence indicate that offshoring since the Global Financial Crisis has prevented automobile exports from recovering. Further, results from pass-through equations indicate that exporters allowed the recent depreciation to raise yen export prices and profit margins rather than export volumes. Finally, regressing stock returns on exchange rates indicates that automakers were more exposed to the value of the yen in 2016 than at any time over the last 12 years.