Japanese yen August 2007

The Japanese yen (JPY) used to be the favorite whipping boy of the protectionists, especially in the auto industry. The yen shot higher during the 80s stock-and-land bubble in Japan, and its weights in U.S. imports began a decline still underway (Figure 2). When the yen more than doubled against the dollar, Japanese goods did become more expensive. They were replaced (as will be explained next month) either by cheaper exports from sources such as China and other Asian exporters or from Mexico or by Japanese goods made outside of Japan, principally in Mexico and the U.S.

The weaker dollar did nothing to increase export weights to Japan, which peaked in the early 90s and have fallen ever since. Much of this is due, of course, to Japan’s Lost Decade, now in its 17th year by some measures. The rest is attributable to various non-price trade barriers in Japan and to the availability of cheaper goods from Asian sources.