Flexible Exchange Rates and Commodity Price Changes: The Case of Japan

Knowledge of the degree to which exchange rate changes are passed on to consumers in importing countries is important in determining how changes in exchange rates affect demand for U.S. agricultural exports. This report analyzes the responsiveness of Japanese wholesale prices to changes in the yen/U.S. dollar exchange rate from 1974 to 1984 for beef, corn, cotton, soybeans, and wheat. The degree to which U.S. exporters and Japanese importers pass on exchange rate changes (exchange rate pass-through) depended on the market structure characteristics for the particular commodity, and on whether the U.S. dollar was increasing or decreasing relative to the yen.