The Dollar Exposure of Japanese Companies
The bulk of Japanese exports and imports are denominated in dollars rather than Japan's local currency, the yen.The consequences of dollar invoicing depend importantly on whether Japanese companies hedge their dollar exposures. If Japanese companies are able fully to hedge their dollar exposures either by using derivative products, locating production in the United States or matching dollar revenues with dollar costs then the choice of invoicing currency will not influence the yen profits of Japanese companies. This paper estimates the degree to which Japanese companies are exposed to movements in the dollar using Japanese stock market data and an international version of the CAPM model to estimate the extent to which Japanese company returns are correlated with changes in the yen-dollar exchange rate.
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