The Impact of the Falling Yen on U.S. Import Prices
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[Excerpt] In the fall of 2012, Japan set forth economic policies aimed at turning around the country’s historic deflationary slide that began in the 1990s. These policies led the Japanese yen to fall dramatically in value relative to the U.S. dollar, reversing what was a long upward trend of strength against the dollar. From September 2012 to May 2013, the yen–dollar exchange rate plummeted 22.5 percent. Although the rate of decline decelerated considerably over the remainder of the year, the yen fell an additional 2.4 percent against the U.S. dollar between May and December. A falling yen means the purchasing power of the U.S. dollar increases for goods imported from Japan. Parallel to the drop in the value of the yen, import prices of Japanese goods fell 3.5 percent from September 2012 to December 2013. The drop in the value of the yen particularly influenced prices in major product areas such as nonelectrical machinery, computers and electronic products, and chemicals, which combined make up nearly 40 percent of U.S. imports from Japan. The industry that is most affected by Japanese import prices is the transportation vehicles industry, which alone represents 42 percent of U.S. imports from Japan.