(7) The analysis below is based on the National Accounts including services. Changes in the response of export prices: increases in export prices, due to yen appreciation, have become smallerįirstly, how export and import prices respond to changes in exchange rates is measured. Considering this interaction between the microeconomy and macroeconomy, the following will examine whether the price and volume of exports and imports, balance of payments and current accounts have responded differently to changes in exchange rates and other factors in recent years. As a result, yen-denominated import prices will progressively fall and the import volume will rise.Īs above, there are interactions where macroeconomic changes in exchange rates affect prices and volume of exports and imports through microeconomic corporate activities, which in turn has macroeconomic effects. (6) In particular, foreign companies that export products whose sales are significantly elastic to price changes would like to try to boost their profits by lowering their sales prices in Japan and by increasing export volume. In contrast, yen appreciation improves the price competitiveness of imports from abroad. At the same time, the volume of exports would gradually decline. Consequently, even if export prices after yen conversion fall immediately due to the appreciation of the yen, export prices would recover to some extent if price shifts occur in the local currency. Although price shifts are not easy when there is stiff price competition with local goods, some price shifting is possible if products have been differentiated as seen in the case of brand-name products. It is necessary to raise sales prices in order to alleviate the impact of deteriorating profits. (5) This is because when the yen appreciates against the dollar, the yen-converted value of the sales price drops at export destinations. Yen appreciation deteriorates the profits of Japanese exporting companies through declines in export prices. The mechanism that causes these trends is as follows. Generally speaking, both yen-denominated export prices and yen-denominated import prices fall when the yen appreciates against the dollar. How will changes in exchange rates affect corporate activities? Let us take the case of yen appreciation. The objective of this section is to understand the structural changes that have taken place in Japan since the 1990s from the viewpoint of the international economy and address the issues encountered by Japan as companies become more globalized.ġ.Macroeconomic Impacts of Exchange Rates Exchange rates and corporate pricing behavior Moreover, the analysis will also include how these changes influenced households in terms of employment, wages and consumption. Next, the impact of exchange rates on corporate profits, trends in overseas business development in Japan's leading export industries and other aspects will be analyzed in order to clarify the relationship between changes in corporate activities during this period and the formation of vertical intra-industry trade in the Asian region. Hence this section will investigate how macroeconomic responses to exchange rate changes have changed. Many of the things regarded as global problems in Japan today seem to be closely related to the changes that occurred after the 1990s. It appears that these changes gradually consolidated a macroeconomic response different from the 1980s. Meanwhile, microeconomic changes in corporate activities, caused by the yen appreciation shock between the late 1980s and early 1990s and other factors, led to structural changes in Japan's international economy. Due to the unstable financial system in Japan, people's concerns were concentrated, during this period, on domestic economic issues such as the disposal of non-performing loans and reducing excess debt. In terms of the exchange rate, the yen began to depreciate in the late 1990s, but appreciated again after the Asian financial crisis. For example, overseas direct investment grew in the late 1980s, and overseas production development of companies and foreign investment rose, and the import penetration ratio has been on an upward trend since the early 1990s ( Figure 3-2-1).įigure 3-2-1 Exchange Rates and Companies' Overseas Development Impacts of globalization on corporate activities and the macroeconomyĬhanges in the international economic environment, symbolized by the continuing appreciation of the yen from the late 1980s to the early 1990s, had a tremendous impact on Japanese corporate activities and led to progressive changes in Japan's economic structure.
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