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Should Korea worry about a permanently weak Yen?

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  • Should Korea worry about a permanently weak Yen?
  • Ree, Jack Joo K.; Hong, Gee Hee; Choi, Seoeun (Thelma)
  • International Monetary Fund


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Title Should Korea worry about a permanently weak Yen?
Similar Titles
Material Type Reports
Author(English)

Ree, Jack Joo K.; Hong, Gee Hee; Choi, Seoeun (Thelma)

Publisher

[Wachington D.C, U.S] : International Monetary Fund

Date 2015-07
Series Title; No IMF Working Paper / WP/15/158
ISBN 978-15-13510-835
Pages 38
Subject Country Japan(Asia and Pacific)
South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Trade
Economy < Economic Conditions
Holding International Monetary Fund
License

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.