The Myth of U.S. Dollar Dominance in Japanese Exports: New Evidence from Japanese Customs Level Data

While Japanese exports are generally considered invoiced mainly in U.S. dollars (USD), this study presents contrary evidence that most Japanese firms choose yen-invoiced exports. Surprisingly, only the top one percent of firms in size tend to choose USD-invoiced exports, based on the Japan Customs export declaration data that was newly made available to researchers. By conducting fixed-effect panel estimation using the granular Japan Customs transaction data, combined with the most comprehensive firm-level data compiled by the Ministry of Economy, Trade and Industry (METI), we demonstrate that the firm size and the intra-firm export share significantly reduce yen-invoiced exports. Smaller firms with few overseas subsidiaries tend to choose yen-invoiced exports to avoid foreign exchange risk. In contrast, larger firms efficiently manage foreign exchange risk arising from USD-invoiced exports, since they tend to export to overseas subsidiaries and benefit from operational hedging that offsets USD-denominated import payments with export revenues within group companies. Smaller firms would continue to choose yen-invoice exports unless they can benefit from operational hedging.