Investigating How Exchange Rates Affected the Japanese Economy after the Advent of Abenomics

         
Author Name Willem THORBECKE (Senior Fellow, RIETI)
Creation Date/NO. January 2022 22-E-003
Research Project East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances
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Abstract

News of aggressive monetary easing by the Bank of Japan in late 2012 contributed to a 45 percent depreciation of the Japanese yen relative to the U.S. dollar. This paper investigates how the depreciation affected the Japanese economy. Exports responded much less than predicted, especially for sectors related to transportation equipment. Imports also responded less than predicted, and the sum of export and import elasticities are too small to meet the Marshall-Lerner condition. The depreciation raised returns for many Japanese stocks, with the response being largest for automobile stocks. The depreciation also raised aggregate Japanese stock returns by twice as much after 2013 as before. This indicates that responses that corporate Japan made to swings in the yen such as transferring production abroad have been good for profitability.