The role of exchange rates in Thai exports to Japan
Thailand and Japan has a long cordial relationship in terms of trade and investment. Japan has been a major export market of Thailand. Thai exporters accept payments with 3 main currencies: the US dollar, the Japanese yen and the Thai baht. This research examines the role of foreign exchange rates in Thai exports to Japan, taking into account the exchange rates in Baht/USD, Baht/100 Yen and Yen/USD. This study analyzes total exports, manufactured product exports, agro-industrial product exports and agricultural product exports. Also, the study considers Japan – Thailand Economic Partnership Agreement (JTEPA) that has enhanced trade between Thailand and Japan since 2007.
The research found that
(1) all three exchange rates play a role in Thai exports to Japan.
(2) The real depreciation of the baht against the US dollar could negatively affect Thai exports to Japan. Specifically, if Thai export prices are quoted in US dollar terms and the yen also depreciates (in real term) against the US dollar, the Thai export prices in US dollar terms may rise. Thus, Thai exports to Japan would fall.
(3) The real depreciation of the yen against the US dollar causes the Thai exports to Japan decline.
(4) The real depreciation of the baht against the yen causes the Thai exports to Japan increase. The increasing role of the Japanese yen and the Thai baht in Thai exports to Japan suggests that policymakers should consider the movements of the Baht/100 Yen exchange rate.