This paper analyzes the influence of exchange rate fluctuation on the production of Japan's manufacturers. As a result, we find that the short-term cyclical relationship between production and the exchange rate, which was stable during the first half of the 1980s, seems to have greatly changed in the latest phase of the yen's appreciation. We argue that the structural change appears to be partly due to so-called "hysteresis." We also examine the background to the prosperity of manufacturers during the latest phase of the yen's appreciation. In addition, with respect to the short-term cyclical effect, sectorial and regional differences are being analyzed.
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.