The Impact of Exchange Rate on Trade Balance between China and Japan—An Empirical Study Based on SVAR Model

Abstract

As one of China’s major trading partners, Competition and cooperation with Japan in international trade play an unignorable role in China's economic development. Based on previous studies and balance-of-payments theory, we collected data on the exchange rate as well as China-Japan import and export trade from 2013 to 2018. SVAR model was utilized to analyze the influence of the exchange rate on international trade between China and Japan. Results show that a stable mutual relationship between the exchange rate and China's export trade with Japan exists in long term, but there is no strong correlation between the exchange rate and China’s import trade with Japan; in short term, the fluctuation in the exchange rate restrains the progression of China-Japan trade.