Impact of oil price shocks on Japanese industries

Oil price shocks characterized by sharp increases in crude oil prices have historically had severe adverse effects on the Japanese economy. However, how such disruptions manifest themselves at the industry level and what adjustments they induce remain insufficiently understood. This study defines the Net Oil Price Increase (NOPI)—constructed following Hamilton (1996, 2003)—as an oil price shock and examines its effects on production and prices in the Aggregate Industry and 18 Japanese manufacturing industries. By comparing the aggregate and industry-level responses, this study seeks to provide a multifaceted interpretation of how oil price shocks affect Japanese industries. The analysis uses two subsamples: January 1978 to December 2002 and January 2003 to December 2019. The results indicate that the Aggregate Industry is affected by supply-side constraints in both periods, although the timing of these effects differs between the two subsamples. By contrast, the responses of individual industries vary substantially across periods. In the pre-2003 subsample, many individual industries exhibit supply-side effects similar to those observed for the Aggregate Industry. However, in the post-2003 subsample demand-side responses associated with precautionary stockpiling, the postponement of purchases, and price negotiations are observed. These results show that the effects of oil price shocks are not confined to supply-side channels within individual industries, but vary across industries, with both their magnitude and transmission channels changing substantially across sample periods.