12. A common complaint leveled against the Japanese government is that it deliberately holds down the value of the yen to boost exports of Japanese products. American steelmakers have been particularly vocal in their complaints. As a remedy, steelmakers in 1985 asked President Reagan to curtail Japanese steel imports further and to impose a 25% tariff to offset what they describe as the "artificial" undervaluation of the yen. Does Nippon Steel profit from a weak yen? What are the likely consequences of the recent appreciation of the yen? Here are some facts. Imports of U.S. raw materials priced in dollars account for about one-third of costs, and exports to the United States generate about 4% to 5% of its revenues. Nippon Steel currently is exporting as much steel as it can to the United States under existing quota restrictions. What additional information do you need to fully assess the impact of currency changes on Nippon Steel?
ANSWER. The initial response is that Nippon Steel gains more on the cost side than it loses on the revenue side from yen appreciation since it is not selling much overseas anyway. However, this analysis is misleading. Specifically, the ...
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