Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports

Abstract

This paper examines the relationship between exchange rate changes and Japanese export pricing behaviour employing a methodology which permits the separate measurement of pricing to market behaviour and the cost impact of exchange rate changes. The results suggest that incomplete pass-through of exchange rate changes is a pervasive phenomenon, but rejects the widely held view that Japanese export firms have relied more heavily on pricing to market strategies during the period of yen appreciation in order to maintain market shares. There is also evidence that estimates which capture only pricing to market behaviour may over-emphasise the degree of pass-through to the extent that cost of production is sensitive to exchange rate changes.