Masafumi Kozuka

Exchange rate, marginal q and investment behaviour of small and medium-sized enterprises in Japan: time series evidence of manufacturing industries

ABSTRACT In this article, we investigate Granger’s causality among the exchange rate, Tobin’s marginal q and investment-capital ratio with quarterly data on firms categorized as small and medium-sized enterprises (SMEs) in Japan. We utilize the data of the following industries: chemical, iron and steel, production machinery, electric machinery and equipment, automobile and accessories and all manufacturing. The empirical results we obtain show that the null hypotheses of no Granger’s causality from the exchange rate to other variables, investment and marginal q, are accepted in all industries. The reason is the lower percentage of export by SMEs. Thus, it is considered that the effects of Abenomics on SMEs are limited, and that other kinds of reflation measures for SMEs are needed.