Is the yen misaligned more during the Abenomics period?

This paper measures the extent to which the real effective exchange rate of the Japanese yen is misaligned from its equilibrium value. The equilibrium value is estimated using the behavioral equilibrium exchange rate (BEER) approach to determine whether the yen is more misaligned during the Abenomics period. Economic fundamentals such as terms of trade, relative price of nontraded to traded goods, net foreign asset ratio over trade volume, and real interest rate differentials are used to assess the equilibrium exchange rate. Because parameter instability is detected for the whole period (1993 Q1-2016 Q2), stable estimation results for the subsample period (2003 Q1-2016 Q2) are used to compute misalignments. The results indicate that the yen was substantially overvalued during the global financial crisis period (2008 Q4-2012 Q4). In contrast, it was undervalued during the Abenomics period (2013 Q1-2016 Q2) but was much less misaligned than in pre-Abenomics periods.