Depreciation and services trade: the evidence from Japan

Purpose This study aims to examine the effects of currency depreciation and volatility on services trade balance and trade partner concentration and dynamics in Japan at a disaggregated level over the 2006M01 to 2023M09 period. Design/methodology/approach It applies linear and non-linear autoregressive distributed lag models and correlation analysis (including cross- and rank correlations) to identify strength, asymmetry and lags in the effects. Findings Except for a few cases, the evidence of both J- and S-curves was found weak and generally not asymmetric, as was the effect of currency volatility on trade balance. Trade partner concentration remained stable, and the dynamics of trade partner ranks were slow. The results are explained in terms of the specific response of services (as opposed to goods) trade to depreciation, the nature of competitive processes and corporate reorganisations in Japan and the macroeconomic policy of the recent 2 decades. Originality/value The study is one of a kind that examines J- and S-curve effects in services, incorporates volatility and considers trade partner composition effects.