The Japan-U.S. Exchange Rate, Productivity, and the Competitiveness of Japanese Industries
In this paper, we focus on the movements of the yen on Japanese industries, and on the sectoral reallocation of Japanese employment. We show that the appreciation episodes of 1985 and 1995 have significantly hurt the ability of Japanese industries to compete with U.S. industries, by raising the relative production costs of Japanese industries. This relative cost gap with U.S. industries narrowed from 1995, owing to faster wage growth in the U.S., and especially to higher productivity growth in some Japanese industries. In fact, in these high productivity Japanese manufacturing industries such as chemicals and transport equipment, relative production costs were essentially back to pre-1985, pre-Plaza Accord levels by 2004. In contrast, the relative production costs of Japanese low productivity manufacturing industries such as textiles and wood products have remained high. Clearly, in the aggregate, the appreciation of the yen was not matched by an increase in Japanese productivity. What then is the appreciation of the aggregate real exchange rate consistent with these Japan-U.S. differences in industrial productivities? To answer this question, we build a three-sector (high productivity manufacturing, low productivity manufacturing, and services) equilibrium macroeconomic-trade model of Japan and the U.S. We find that while the yen was gundervalued h before 1985, it was significantly govervalued h after 1985, and especially since 1995. In our model simulations, the Balassa-Samuelson effect is observed: the equilibrium real exchange rate is appreciating over time, owing to strong relative growth in the Japanese high productivity manufacturing sector, but very poor relative productivity growth in the Japanese services sector. Interestingly, the continued appreciation of the equilibrium real exchange rate meant that the actual real exchange rate was near its equilibrium value by 2003-2004, when the nominal yen dollar rate was about 120 yen to the dollar.
|Date of creation:||Mar 2009|
|Date of revision:|
|Contact details of provider:|| Postal: 2-1 Naka, Kunitachi City, Tokyo 186|
Web page: http://www.ier.hit-u.ac.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- FUKAO Kyoji & HAMAGATA Sumio & INUI Tomohiko & ITO Keiko & Hyeog Ug KWON & MAKINO Tatsuji & MIYAGAWA Tsutomu & NAKANISHI Yasuo & TOKUI Joji, 2007. "Estimation Procedures and TFP Analysis of the JIP Database 2006 Provisional Version," Discussion papers 07003, Research Institute of Economy, Trade and Industry (RIETI).
- Marcel P. Timmer & Mary O’Mahony & Bart van Ark, 2007. "EU KLEMS Growth and Productivity Accounts: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 71-85, Spring.
When requesting a correction, please mention this item's handle: RePEc:hst:ghsdps:gd08-047. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tatsuji Makino)
If references are entirely missing, you can add them using this form.