ABSTRACT
Between February 1985 and December 1988 the yen appreciated sharply, hurting many small manufacturers in Japan. The appreciation in the 1980s was roughly twice as large as that in 1971-73, when the Nixon administration forced the yen off its fixed rate of 360 to the dollar, and also larger than that in 1977-78 when the yen recovered from the first oil crisis. 1 While many large firms flourished under the strengthening yen because of their ownership of foreign assets, small exporting and import-competing firms had little to offset the squeeze on their profits. Small firms had to settle for cutting prices severely or selling at a price disadvantage against goods produced in countries that did not undergo a currency appreciation.
