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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

  • Takatoshi Ito
  • Satoshi Koibuchi
  • Kiyotaka Sato
  • Junko Shimizu

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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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
Date of revision:
Handle: RePEc:nbr:nberwo:16231
Note: IFM ME
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  2. 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.
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