Should Korea Worry about a Permanently Weak Yen?

Three years have passed since the Bank of Japan's asset purchase program was introduced in2011, causing a sharp decline in the value of the Japanese Yen. What would be the implicationsfor Japan and Korea's exporters if the weak Yen is here to stay? We explore this question byexamining exporters' pricing behaviors and volume responses to exchange rate shocks. We findthat if the weak Yen persists, it would strengthen Japan's price competitiveness over time asexport prices respond with a lag. We also find that while direct boosts to export demand will berather limited, a persistently weaker Yen would expand the Japanese exporters' profits lastingly,which could reinvigorate the ability, particularly of flagship exporting firms, to compete andgrow in the global market over time. These findings suggest that the muted price and volumeresponse so far to the sustained weakness of the Yen may mask a more fundamental shift inthe relative competitiveness of Japanese and Korean exporters.