Exchange Rate Appreciation and Structural Adjustment: Evidence from the Plaza Accord

Hiroshi Kumanomido
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Hiroshi Kumanomido: Munich Graduate School of Economics, LMU Munich, GERMANY and Junior Research Fellow, Research Institute for Economics & Business Administration, Kobe University, JAPAN

No DP2026-19, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Large exchange rate appreciations pose a fundamental challenge for open economies: they compress export margins, weaken competitiveness, and force firms and regions to adjust their production and employment structures. However, evidence on how such adjustments unfold over the long run remains limited. This paper studies these mechanisms using Japan's sharp yen appreciation following the 1985 Plaza Accord. Combining a firm-level panel data from 1980 to 1999 with industry-level shock exposure, I estimate how appreciation affected firms' employment, sales, and labor productivity. The results show sharp declines in sales and productivity but modest employment losses, reflecting Japan's rigid labor practices. Industries more exposed to export shocks expanded FDI in Asia without inducing additional domestic employment adjustment, but leading to a sharper decline in measured labor productivity. At the regional level, labor reallocation from manufacturing to services occurred in shock-exposed regions, suggesting that the yen appreciation led to gradual structural transformation.

Keywords: Exchange rate; Trade policy; Firm; Plaza Accord; Structural transformation (search for similar items in EconPapers)
JEL-codes: F14 F31 F68 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2026-06
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