Is the exchange rate the main factor determining a nation’s export growth? The recent experience of a weakening yen suggests the currency effect on exports–at least in Japan’s case–may be much more limited than previously assumed. The failure of Japan’s exports to log significant growth despite the yen’s sharp depreciation, defies what economists call “the J-curve effect.” Under the J-curve, a weakening of a currency leads to a short-term worsening of the trade balance followed by a pickup in exports and a drop in imports, with a lag of about 12 months. But after two years of a falling yen, its export-boosting effect ... (full story)