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Why has the yen failed to become a dominant invoicing currency in Asia? A firm-level analysis of Japanese Exporters' invoicing behavior

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16231.

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Date of creation: Jul 2010
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Handle: RePEc:nbr:nberwo:16231

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  1. Goldberg, Linda S. & Tille, Cédric, 2009. "Micro, Macro, and Strategic Forces in International Trade Invoicing," CEPR Discussion Papers 7534, C.E.P.R. Discussion Papers.
  2. Shabtai Donnenfeld & Alfred A. Haug, 2001. "Currency Invoicing of U.S. Imports," Working Papers, York University, Department of Economics 2002_11, York University, Department of Economics, revised Apr 2002.
  3. John F. O. Bilson & Richard C. Marston, 1984. "Exchange Rate Theory and Practice," NBER Books, National Bureau of Economic Research, Inc, number bils84-1.
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  5. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle Currency Use in International Trade," NBER Working Papers 11127, National Bureau of Economic Research, Inc.
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  7. Johnson, Martin & Pick, Daniel, 1997. "Currency Quandary: The Choice of Invoicing Currency under Exchange-Rate Uncertainty," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 118-28, February.
  8. Donnenfeld, S. & Zilcha, I., 1989. "Pricing Of Exports And Exchange Rate Uncertainty," Papers 12-89, Tel Aviv.
  9. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
  10. Ligthart, J.E. & Da Silva, J., 2007. "Currency Invoicing in International Trade: A Panel Data Approach," Discussion Paper, Tilburg University, Center for Economic Research 2007-25, Tilburg University, Center for Economic Research.
  11. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
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  16. Yushi Yoshida & Shinji Takagi, 1999. "Exchange Rate Movements and Tradable Goods Prices in East Asia," IMF Working Papers 99/31, International Monetary Fund.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Japan’s rising yen and the decline of the US dollar
    by Masaya Sakuragawa in East Asia Forum on 2011-10-01 12:00:26
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Cited by:
  1. Xiaoli Chen & Yin‐Wong Cheung, 2011. "Renminbi Going Global," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 19(2), pages 1-18, 03.
  2. ITO Takatoshi & KOIBUCHI Satoshi & SATO Kiyotaka & SHIMIZU Junko, 2013. "Exchange Rate Exposure and Exchange Rate Risk Management: The case of Japanese exporting firms," Discussion papers 13025, Research Institute of Economy, Trade and Industry (RIETI).
  3. Straume, Hans-Martin, 2013. "Currency invoicing in Norwegian salmon export," Working Papers in Economics 11/13, University of Bergen, Department of Economics.
  4. Linda Goldberg, 2011. "The international role of the dollar: Does it matter if this changes?," Staff Reports 522, Federal Reserve Bank of New York.
  5. Ligthart, Jenny E. & Werner, Sebastian E. V., 2012. "Has the Euro affected the choice of invoicing currency?," Working Paper Series 1414, European Central Bank.
  6. World Bank, 2011. "Global Development Horizons 2011 : Multipolarity - The New Global Economy," World Bank Publications, The World Bank, number 2313.
  7. Samar Maziad & Joong Shik Kang, 2012. "RMB Internationalization," IMF Working Papers 12/133, International Monetary Fund.
  8. Eichengreen, Barry & Chiţu, Livia & Mehl, Arnaud, 2014. "Network effects, homogeneous goods and international currency choice: new evidence on oil markets from an older era," Working Paper Series 1651, European Central Bank.
  9. Ito, Hiro & Chinn, Menzie, 2014. "The Rise of the “Redback” and the People’s Republic of China’s Capital Account Liberalization: An Empirical Analysis of the Determinants of Invoicing Currencies," ADBI Working Papers 473, Asian Development Bank Institute.
  10. Subacchi, Paola, 2013. "Expanding Beyond Borders: The Yen and the Yuan," ADBI Working Papers 450, Asian Development Bank Institute.

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