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Exchange rate pass-through on Japanese prices: Import price, producer price, and core CPI

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  • SASAKI Yuri
  • YOSHIDA Yushi
  • Piotr Kansho OTSUBO

Abstract

Against the background of the two percent inflation target set in Japan that started in 2013, we investigate the impediments in the process of passing exchange rate fluctuations to the core consumer price index. To this end, we construct industry-level nominal effective exchange rate and industry-level producer price indices, which are matched with the industry classifications used for import price indices. Time-varying parameter vector autoregression analysis reveals that, in general, exchange rate pass-throughs increased, especially after the global financial crisis. Among the pass-throughs that occur at the import price, domestic producer price, and consumer price stages, we find that the weakest link exists between the import price and domestic producer price. However, the impact on the industry is not negligible; the small spillover effect on other industries at the producer price stage prevents consumer prices from rising after depreciation.

Suggested Citation

  • SASAKI Yuri & YOSHIDA Yushi & Piotr Kansho OTSUBO, 2019. "Exchange rate pass-through on Japanese prices: Import price, producer price, and core CPI," Discussion papers 19078, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:19078
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