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Choice of Invoicing Currency: New evidence from a questionnaire survey of Japanese export firms

  • ITO Takatoshi
  • KOIBUCHI Satoshi
  • SATO Kiyotaka
  • SHIMIZU Junko

This paper is the first comprehensive research using a questionnaire survey on the choice of invoicing currency with all Japanese manufacturing firms listed in the Tokyo Stock Exchange. Questionnaires were sent out to 920 Japanese firms in September 2009, and 227 firms responded. We present new firm-level evidence on invoicing currency by the destination and type of trading partners, with a particular emphasis on the difference between arms-length and intra-firm trades. We also conduct cross-section analysis to investigate what determines the invoicing choice of Japanese firms. Our novel findings are as follows. (1) The invoicing choice depends on whether it is an intra-firm trade or an arms-length trade. While yen invoicing tends to be chosen in arms-length trades, there is a strong tendency that invoicing in the importer's currency is used in intra-firm trades, suggesting that the parent firm in Japan assumes and manages the currency risk. In exports to Asian subsidiaries, U.S. dollar invoicing is used. (2) Firm size does matter in the choice of invoice currency. The larger (smaller) the size of the firms, the more likely they are to conduct intra-firm (arms-length, resp.) trades. (3) In terms of the number of Japanese firms, using yen invoicing is more prevalent than U.S. dollar invoicing. However, adjusting for the export value of each firm, the share of U.S. dollar invoicing is on average larger than that of yen invoicing, mainly because Japanese firms with a large volume of exports tend to have a global sales and production network where U.S. dollar invoicing is dominant, especially in the case of "triangular trade."

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13034.

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Length: 33 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:eti:dpaper:13034
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  1. Hellerstein, Rebecca & Villas-Boas, Sofia B, 2006. "Outsourcing and pass-through," CUDARE Working Paper Series 1016R3, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy, revised Feb 2010.
  2. 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.
  3. Philippe Bacchetta & Eric van Wincoop, 2002. "Why Do Consumer Prices React less than Import Prices to Exchange Rates?," NBER Working Papers 9352, National Bureau of Economic Research, Inc.
  4. Fukuda Shin-ichi & Cong Ji, 1994. "On the Choice of Invoice Currency by Japanese Exporters: The PTM Approach," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 511-529, December.
  5. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  6. Neiman, Brent, 2010. "Stickiness, synchronization, and passthrough in intrafirm trade prices," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 295-308, April.
  7. Shin-ichi Fukuda & Masanori Ono, 2004. "The Choice of Invoice Currency under Uncertainty: Theory and Evidence from Korea," CIRJE F-Series CIRJE-F-271, CIRJE, Faculty of Economics, University of Tokyo.
  8. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
  9. Shabtai Donnenfeld & Alfred Haug, 2003. "Currency Invoicing in International Trade: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 332-345, 05.
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