Journal Article

Exchange rates and profit margins: the case of Japanese exporters

Abstract: When exchange rates shift, exporters must decide whether it is more important to maintain profit margins or to maintain stable export prices. This examination of Japanese exporters finds that these firms have taken a middle course: By altering their profit margins to some degree, the exporters moderate the exchange-rate-induced changes in prices seen by their foreign customers. The analysis finds that in the three major exporting industries - industrial machinery, electrical machinery, and transportation equipment - a 10 percent rise in the yen leads firms to lower profit margins on exports by 4 percent relative to the margins on their sales in Japan. That is, the exporters pass on more than half of any change in the yen to the price seen by their foreign customers and absorb the remainder by adjusting profit margins on foreign sales.

Keywords: Exports; Prices; Japan; Foreign exchange rates - Japan;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 1999

Volume: 5

Issue: Apr

Pages: 41-54