Industry†specific Exchange Rate Fluctuations, Japanese Exports and Financial Constraints: Evidence from Panel Vector Autoregressive Analysis

Shajuan Zhang

Asian Economic Journal, 2018, vol. 32, issue 2, 125-145

Abstract: Using a panel vector autoregression approach and industry breakdown data for financial constraints obtained from the Bank of Japan's Tankan (Short†Term Economic Survey of Enterprises in Japan) database, this study empirically investigates whether and how Japanese firms' financial constraints (internal and external) influence the response of Japanese sectoral exports to an exchange rate shock. Furthermore, we use the industry†specific real effective exchange rate data developed by to allow for different movements of real effective exchange rates across industries. It is found that financial constraints have a significant influence on Japanese exports in response to exchange rate shocks. Japanese exporters with either lower internal financial constraints or external financial constraints are less affected by the yen's appreciation. In addition, if firms face high external financial constraints, only reducing the internal financial constraints cannot help them mitigate the impact of the yen's appreciation on their exports. Thus, an accommodative financial environment also plays an important role in alleviating the impact that the yen's appreciation has on Japanese exports.

Date: 2018
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