This paper investigates the asymmetric effects of exchange rate exposure on Japanese stock returns at the industry level. Using the asymmetric correlation test of Hong et al. (2007), we examine five major currencies against the yen and thirty-three Japanese sectoral stock returns. Significant asymmetric responses in stock returns to exchange rate changes are found in the pharmaceutical, real estate, and air transportation industries. These findings are consistent with the pricing-to-market and hysteretic behavior for the pharmaceutical and air transportation industries and with the hedging behavior for the real estate industry. The results for the threshold models confirm that the asymmetric exposures are based on industry characteristics.
