Has the yen depreciation of recent years improved Japan’s trade balance? Testing the J-curve effect

ABSTRACT

This study investigates the existence of the J-curve effect in Japan for the most recent sample period, for which there is a continuation of the weak trend in the yen. The results failed to confirm the existence of the J-curve effect in national Japanese data. However, the J-curve effect explains the time lag between yen depreciation from the end of 2012 and improvement in the trade balance in 2015 in the Kansai region, in which only a relatively small proportion of exports can be attributed to the automotive industry with using the pricing strategies. Specifically, the empirical result suggested that the period from August 2013 to July 2014 formed the dip in the J-curve, and it matches actual relevant movements.

KEYWORDS:

• J-curve effect
• trade balance
• yen depreciation
• Kansai region
• pricing strategy

JEL CLASSIFICATION:

• F14
• F31
• F40

Acknowledgments

This study benefited significantly from the helpful advice of staff at Osaka Customs, who also provided detailed trade balance-related data. I would like to formally express my gratitude for this kind cooperation.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Aftab et al. (2021) examined the asymmetric effect of currency order flow on the exchange rates in Asian countries, using linear and nonlinear ARDL models.