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Exchange Rate Pass-Through in the Deflationary Japan: How Effective is the Yen’s Depreciation for Fighting Deflation?


  • Eiji Fujii


There is an increasing endorsement for the yen’s depreciation as a means to fight the ongoing deflation in Japan. The idea of generating inflation via depreciation relies on the assumption that exporters pass-through most of the effect of the exchange rate changes to the Japanese importers and consumers. A recent study by Taylor (2000), however, suggests that the rate of the pass-through may have declined in many countries making depreciation of domestic currencies less inflationary. In this study, we estimate the degree of exchange rate pass-through to the Japanese imports, focusing on the recent deflationary period. We then assess quantitatively the expected effectiveness of depreciation in taming the deflation. Our empirical results indicate that the long-run import pass-through has indeed declined significantly. As a result, the inflationary effect of depreciation has been reduced substantially over the past two decades.

Suggested Citation

  • Eiji Fujii, 2004. "Exchange Rate Pass-Through in the Deflationary Japan: How Effective is the Yen’s Depreciation for Fighting Deflation?," CESifo Working Paper Series 1134, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1134

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    References listed on IDEAS

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    Cited by:

    1. Joseph P. Byrne & Aditya S. Chavali & Alexandros Kontonikas., 2010. "Exchange Rate Pass Through To Import Prices: Panel Evidence From Emerging Market Economies," Working Papers 2010_19, Business School - Economics, University of Glasgow.
    2. Zakaria Moussa, 2016. "How big is the comeback? Japanese exchange rate pass-through assessed by Time-Varying FAVAR," Working Papers hal-01282811, HAL.

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    pass-through; exchange rate; deflation; Japan;

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