The Yuan's Exchange Rates and Pass-through Effects on the Prices of Japanese and the US Imports

This paper estimated pass-through effects of the yuan's exchange rates on the prices of Japanese and the US imports from China. Empirical results show that, a 1% nominal appreciation of the yuan would result in a 0.23% increase in the prices of the US imports in the short run and 0.47% in the long run. Japanese import prices were relatively more responsive. For a 1% nominal appreciation of the yuan against the yen, Japanese import prices would be expected to rise 0.55% in the short run, and 0.99%, an almost complete pass-through, in the long run. The high degree of pass-through effects on the prices of Japanese imports was also found at the disaggregated sectoral level: food, raw materials, apparel, manufacturing and machinery. However, further analysis indicates that, the high pass-through effects were mainly attributed to China's peg to the US dollar policy and that the dollar is used as a dominant invoicing currency for China's exports to Japan. The estimated low pass-through effects suggest that, a moderate appreciation of the yuan would have very little impact on China's exports.