The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
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.