The yen and Japanese manufacturing employment

Using two-level industry-level data from 1975 to 1994, we estimate the effects of fluctuations of the yen, through movements in foreign prices, on Japanese manufacturing employment. First, we find that an exchange rate induced change in foreign industry-specific prices has a sizeable effect on Japanese employment in the long-run. Second, we cannot detect any difference between the high and low export sectors in their responsiveness to exchange rates. A by-product of our research is the construction of industry-specific real exchange rates for Japan that are probably the most careful to date, allowing us to examine the changing competitiveness of Japanese industries. (C) 1998 Elsevier Science Ltd. All rights reserved. JEL classifications: F12, F14, F41.