Exchange Rates and Profit Margins: The Case of Japanese Exporters

14 Pages Posted: 2 Aug 2007


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: exchange rates, Japan, exports

JEL Classification: F12, F41

Suggested Citation

Klitgaard, Thomas, Exchange Rates and Profit Margins: The Case of Japanese Exporters. Economic Policy Review, Vol. 5, No. 1, April 1999. Available at SSRN:

Thomas Klitgaard (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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