When exporting to Asian subsidiaries, the American 2) Company size is important in the choice of invoice currency. In the interview analysis, we obtained the share of invoice currency that each sample company reported. Since even destination-specific foreign sales data are not available, we can show the weighted average share of currency invoicing only for exports to the world.
It is shown that, in terms of the consolidated sales, the larger (smaller) the firm size, the lower (higher) the share of yen invoicing. On the other hand, the larger (smaller) the firm size, the larger (smaller) the share of US dollar invoicing. Obviously, the share of US dollar invoicing is the highest (77.9 percent) in exports to the United States.
Second, in the case of exports to the euro area, the share of invoicing in euros is 51.0 percent, while 35.3 percent of exports are invoiced in yen. For exports to the United Kingdom, the share of invoicing in British pounds is 32.1 percent, which is slightly less than the share of invoicing in yen (35.0 percent). Fourth, in general, the larger the companies, the greater the proportion of invoicing in US dollars or invoicing in the importer's currency.
In the case of larger companies, the proportion of yen invoicing is somewhat higher than invoicing in US dollars.
In exports to North America, Brazil, the Euro area, the UK, and most Asian countries, intra-firm trade (exports to the local subsidiaries) accounts for the largest share
First, in exports to the United States, Euro area and the UK, Japanese firms export their products mainly to their domestic subsidiaries. Even in exports to Canada, Mexico and Brazil, the share of exports to the local subsidiaries is the largest, accounting for about 38 to 41 percent. Second, in exports to Asia, Japanese firms have a strong tendency to export to their local subsidiaries, except for Korea, the Philippines, India and countries in the Middle East, where the local agency (local trading company) is the largest importer is.
Third, in exports to other developing countries, including Australia and New Zealand, the local agency (local trading company) is the main importer. For example, the strong tendency to export to local subsidiaries becomes more evident in the large size firm's exports to Asian countries. Interestingly, the Japanese trading company (Sogo Shosha) plays a relatively minor role even in Japanese exports to Asia.
In our questionnaire survey, we did not obtain the information on the exact share of currency invoicing, but on which currency is most commonly used in exports to different trading partners at each destination. When exporting to the United States, other North American countries and Latin American countries, the US dollar is most commonly used in intra-company trade. Invoicing in the local currency (of the importer) is dominant for exports to the euro area and the United Kingdom, while the euro is largely used for exports to Eastern European countries.
Second, yen is generally used in discretionary trade (ie exports to local trading companies and Sogo Shosha) in all destination countries except the United States, Mexico and the Eurozone, where invoicing in the importer's currency is predominant. Second, while the yen is used slightly more than the US dollar for trade invoicing for exports to local manufacturing subsidiaries, the US dollar is used more for trade invoicing for exports to local sales subsidiaries. 6 For example, if 50 percent of its exports to Asia are invoiced in U.S. dollars, 30 percent in local currency, and 20 percent in yen, we consider the US dollar to be the main currency of an account when exporting to Asia.
The share of US dollar invoicing clearly in exports to Asia and other developing countries. The choice of invoice currency by trading partner: Japanese exports to advanced and emerging countries. Interestingly, 67 percent (113 out of 168) of Japanese firms' exports to the first type (the local sales-oriented manufacturing subsidiaries) are invoiced in yen, but the corresponding share falls to 51 percent (88 out of 172) of Japanese exports to the second type ( the export-oriented production subsidiaries).
Japanese production subsidiaries in Asia have a strong tendency to choose US dollar invoicing in their exports to foreign countries
Empirical Results 3-1. Empirical Framework
Second, we construct a dummy for top stocks, which is a proxy for the firm's competitiveness in the global market. The market hedging dummy requires one if firms use any market hedging tools to manage their exchange rate risk. Second, we evaluate the estimated coefficients for the explanatory variables included in the country vector.
The coefficient of the Bid-Ask spread is positive and highly significant in specifications (1) to (3) in the yen billing regression, and negative and highly significant in (5) to (12) in the dollar and currency billing regressions of the importer. billing regression. The country/region dummy associated with the US dollar has negative and statistically significant coefficients in the importer currency billing regression, while it has positive but insignificant coefficients in the yen billing and US dollar billing regressions. Third, among the explanatory variables included in the goods vector, the coefficients of both the differentiated goods (Rauch) and world-weighted goods dummies are positive and highly significant in the yen invoicing regression.
Regarding the trading partner dummies in the channel vector, in the specification without interaction terms, (1), (5), and (9), the coefficients for both dummies for exports to product subsidiaries and sales subsidiaries are negative and highly significant in the yen invoicing regression, while positive and strongly significant in the dollar invoicing and importer currency invoicing regressions. Among arm's-length trade, coefficients for exports via Sogo Shosha (Japanese trading firms) are positive and statistically significant in the yen invoicing regression and significantly negative in the dollar invoicing regression, while they have no significant impact on the importer's currency invoicing. First, by using the interaction term between the dummy for subsidiaries exporting to other countries and the share of exports to manufacturing subsidiaries, we can distinguish between Japanese exports to the local sales-oriented manufacturing subsidiaries and export-oriented to export-oriented. production subsidiaries.
The interaction term gets a negative and highly significant coefficient in the yen invoicing regression and a significantly positive coefficient in the dollar invoicing regression, while a positive but insignificant coefficient in the importer currency regression. 5 percent or 10 percent level in the dollar billing regression after controlling for industry dummies taking transportation machinery as the benchmark. This result shows that an increase in firm size in terms of consolidated sales decreases yen-invoiced exports and increases dollar-invoiced exports.
We also include two measures of the firm's ability to manage exchange rate risk in specifications (4), (8) and (12). Both market hedge and operational hedge caps have significantly negative coefficients in the yen billing regression and significantly positive coefficients in the dollar billing regression. Thus, in the light of exchange rate risk management, the firm size matters in the choice of billing currency.
In this sense, we confirm that invoicing in the currency of the importer is much more important in exporting to advanced economies than exporting to Asian countries, and invoicing in US dollars is more important in exporting to Asian countries. This evidence suggests that hedging activities play a more important role in the invoicing choice of Japanese exports to Asian countries mainly because of the relatively high currency risk in trade with Asian countries.
Conclusion
Fourth, it is also our future task to analyze the behavior of Japanese importers whether they are in a position to insist on the yen-invoiced transactions on their trading counterpart. Bacchetta, Philippe and Eric van Wincoop, 2003, "Why consumer prices respond less than import prices to exchange rates," Journal of the European Economic Association, 1(2-3), pp.662-670. Bacchetta, Philippe and Eric van Wincoop, 2005, "A Theory of the Currency Denomination of International Trade," Journal of International Economics, 67(2), pp.295-319.
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