Working Paper: NBER ID: w16231
Authors: Takatoshi Ito; Satoshi Koibuchi; Kiyotaka Sato; Junko Shimizu
Abstract: It has been a well-known puzzle why the yen has not been used more in trade invoicing among Japanese exporters. Despite the yen's status as an only fully convertible currency in Asia, two patterns stand out as puzzling features of an excessively small share of yen invoicing: First, a strong tendency of Japanese exporters to choose importer's currency in their exports to advanced countries, and second, the prevalence of US dollar invoicing in Japanese exports to East Asia even though Japanese firms have built a regional production network in the last two decades. New possible determinants of currency invoicing at a firm-level are found through interviews with Japanese representative exporting firms. Invoicing behavior is examined by probit estimation using the unique data set on the firms' currency invoicing choice by destination. Our novel findings suggest that a surprisingly low share of yen invoicing among Japanese exports even in the 2000s can be attributable to (1) a scale-economy in concentrating currency risk at the headquarter as intra-firm trades with overseas operations of Japanese firms grew; and (2) the production/trade structure of Japanese electronics companies in Asia in which final products tend to be exported to the United States or Europe.
Keywords: Currency invoicing; Japanese exporters; Invoicing behavior; Exchange rate risk; Probit estimation
JEL Codes: F23; F31; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Invoicing in the importer's currency (F31) | Japanese exports to advanced countries (F14) |
| Japanese parent firms take on exchange rate risk (F31) | Invoicing in the local currency (F31) |
| Production and sales structure (L23) | Invoicing choices (D25) |
| Exchange rate risk management strategies (F31) | Invoicing behavior (L14) |
| High differentiation of products (L15) | Invoicing in yen (F31) |
| Dominant market share (L17) | Invoicing in yen (F31) |
| Shift in production bases to Asia (L23) | Predominantly invoiced in US dollars (F31) |
| Local subsidiaries exporting to the US market (F23) | Predominantly invoiced in US dollars (F31) |
| Growing intrafirm trade (F12) | Low share of yen invoicing (F31) |
| Established production network in Asia (L23) | Low share of yen invoicing (F31) |
| Dominance of the US dollar (F31) | Low share of yen invoicing (F31) |