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Explanation of the Effective Exchange Rate (Nominal, Real)

November 2015
Bank of Japan
Research and Statistics Department

Basic information

Compilation section : Research and Statistics Department

Frequency of compilation : monthly basis

Time of release : around the 20th business day of the following month

Method of release : Bank of Japan Internet web site

Publications : Financial and Economic Statistics Monthly, Bank of Japan Statistics

Commencement of data : January 1970

1. Data and Methodology

(1) Object

The effective exchange rate (EER) is an indicator that captures the international competitiveness of a currency, which cannot be measured only by examining bilateral exchange rates.

The EERs of the Japanese yen are calculated as follows.  The weighted average of the yen's exchange rate against other currencies is calculated using the relative importance -- which is measured by the total value of trade, etc. -- as its weights.

(2) Released Series

 Nominal and real effective exchange rates.

(3) Compilation Methodology

The Bank of Japan (BOJ) uses the "broad-based" EERs of the Bank for International Settlements (BIS) for the latest EERs of the Japanese yen. For details on the "broad-based" rates -- such as the compilation method, coverage, and weights -- see the BIS website (Link to an external website).

As for the EERs from January 1970 to December 1993, the BOJ estimates them retrospectively using the monthly rate of change of the BIS "narrow-based" rates, since the BIS "broad-based" rates are only available from January 1994.

(4) Other Information

As of November 2015, the BIS calculates the EERs of each economy against around 60 economies for the "broad-based" rates and around 25 economies for the "narrow-based" rates. The BIS's EERs enable data users to compare the international competitiveness of currencies based on a common standard. The BOJ's EERs, which are calculated using those of the BIS, naturally/also have the same feature.

2. Notice on Usage

The BIS calculates the weights of the EERs every three years after the corresponding period ends, using the three-year average of the total value of trade. For example, the weights for 2014-2016 will be calculated in 2017 and thereafter, all trade figures for 2014-2016 will become available; when the weights are updated, the BIS revises the EERs retrospectively. Until the new weights become available, the BIS continues to use the latest weights to calculate the EERs.