TAIYO YOSHIMI, Ph.D.

This study examines how the productivity of an exporter influences the choice of cash-in-advance (CIA) payment. Using the transaction-level data of Turkish textile and clothing exports from 2009 to 2017 merged with the firm-level information, we find that the relationship between the exporter's productivity and the likelihood that the exporter uses the CIA is nonlinear. An exporter with higher productivity is more likely to choose the CIA; however, this tendency is mitigated among the highest-productivity exporters. We build a parsimonious theoretical model considering firm productivity heterogeneity and provide a rationale for those empirical findings. Furthermore, the CIA is more commonly used for exports in small transactions and to countries with a weak rule of law. We also show that the CIA is more likely to be used for destination countries with low gross domestic products per capita. In addition, the CIA is used more commonly when the value of the Lira is low against the destination country's currency.

Kemal Türkcan, Yushi Yoshida and Taiyo Yoshimi

2025

Open Economies Review, Vol.36 (February): 221-242

This paper considers the case where multiple tariff schemes (e.g., general and preferential schemes) are available between trading countries. We incorporate these tariffs into gravity equations and estimate them by the Pseudo-Poisson maximum likelihood technique. The results show that omitting either tariff type leads to significant estimates biases. If fixed effects to control other tariffs are not included in the model, both preferential and general tariffs are to be introduced in the gravity equation. Indeed, some estimation results for precision metals show that reducing both types of tariffs contributes to significantly increasing trade values. However, reducing general tariffs does not always have a trade-enhancing effect. In leather products, for example, its impact was insignificant. Nevertheless, the reduction of preferential tariffs was again found to increase trade values significantly.

Kazunobu Hayakawa and Taiyo Yoshimi

2024

The Journal of International Trade & Economic Development, Vol.33, Iss.8 (December): 1477-1494

This study proposes an approach for quantifying two kinds of costs related to the utilization of regional trade agreements (RTAs). The first, called the “procurement adjustment cost,” represents the cost involved in meeting the rules of origin by adjusting procurement sources. The second is the additional fixed costs required to utilize RTAs, including document preparation costs for the certificates of origin. Applying our approach to Thailand’s imports from China, our estimates suggest that procurement adjustment costs at the median are equivalent to 4 percent of the per-unit production cost. RTA utilization also requires an additional 27 percent in fixed costs. In addition, we simulate how much a reduction in these costs would enhance RTA utilization.

Kazunobu Hayakawa, Naoto Jinji, Nuttawut Laksanapanyakul, Toshiyuki Matsuura and Taiyo Yoshimi

2023

The World Economy, Vol.46, Iss.12 (December): 3542-3570

This study provides evidence of firm-level utilization of regional trade agreements (RTAs) using transaction-level import data for Thailand. Two stylized facts are presented: some firms use RTA schemes in imports from RTA partner countries, whereas others do not; among firms that import from RTA partner countries under RTA schemes, some use RTA schemes for all transactions but others use them only for some transactions. To interpret these observations, we focus on the role of importers’ demand size. Specifically, we reveal that import firm-product-level RTA utilization rates are higher for larger-size importers in terms of demand, indicating that the difference in the share of utilization of RTA schemes across importers stems from the difference in the importers’ demand size. We also find that the utilization rates are higher when the preference margin, defined as most-favored-nation tariff rate minus RTA rate, is larger.

Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2023

Journal of Asian Economics, Vol.86, 101610 (June)

We incorporate sectoral job separation rates in a small open economy model to examine the Balassa-Samuelson (B-S) effect. Unequal separation rates give rise to compensating wage differentials. We simulate the model for Japan and replicate a feature of its economy that the nontradeables sector has higher wages and a higher separation rate compared to the tradeables sector. With productivity growth in the tradeables sector, labour moves from the tradeables sector to the nontradeables sector if tradeables and nontradeables are complements in consumption. The B-S effect is dampened. With a higher separation rate in the nontradeables sector, higher wages in the nontradeables sector amplifies this labour movement. Nevertheless, unemployment always falls due to a positive income effect. In contrast, the effect of productivity growth in the nontradeables sector is to lower the real exchange rate and raise unemployment.

Gaston Noel and Taiyo Yoshimi

2023

Japan & The World Economy, Vol.65, 101172 (March)

This study examines COVID-19 pandemic effects on the stock market and exchange rate of South Korea. With daily data from January 2, 2019 to August 31, 2020, we show that a new infection spike increases stock price index volatility and decreases foreign investors' holdings of domestic stocks, and indirectly leads to the depreciation of the South Korean won. We indicate that investors may have repurchased the South Korean won seven days after an infection spike, thereby slightly increasing its value. We also find that the Bank of Korea's foreign exchange intervention had a short-run effect with a limited impact. The intervention did not have a significant effect on exchange rate volatility.

Takeshi Hoshikawa and Taiyo Yoshimi

2021

The Developing Economies, Vol.59, Iss.2 (June): 206-222

This paper examines the determinants of the probability that an exporter chooses between a most-favored nation (MFN) scheme and multiple regional trade agreement (RTA) schemes. We estimate a discrete choice model using transaction-level import data for Thailand in 2014. We find that RTA schemes are more likely to be chosen, given a larger transaction value. Among RTA schemes, the ones with less restrictive rules of origin or lower tariff rates are more likely to be selected. We also conduct simulation analysis to provide quantitative policy implications.

Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2021

Review of World Economics, Vol.157, Iss.2 (May): 323-346

We examine how import processing time, which is one of the major obstacles in international trade, affects export patterns at the establishment level. Investigating the effect of such time costs on export patterns reveals how smoothness or sluggishness in operations at one stage affects all stages in an international production network. We first discuss the effects of import processing time on exports, export shipment frequency and exports per shipment from a theoretical standpoint. We employ highly detailed customs data for Thailand from 2007 to 2011 to empirically investigate our theoretical predictions. Import processing time is measured using the difference between the dates on which import shipments arrive in ports and when they were released from the container yard. Results suggest that longer import processing times reduce total exports, particularly as a result of decreasing export frequency; this testifies to the importance of time costs in international trade. It is also revealed that negative effects of import processing time on exports per shipment appear in some specific instances, such as in the case of sea transportation. These results imply that the time spent in one stage has significant effects on both upstream and downstream stages in international production networks.

Kazunobu Hayakawa, Nuttawut Laksanapanyakul and Taiyo Yoshimi

2019

The World Economy, Vol.42, Iss.7 (July): 2070-2088

Mega‐regional trade agreements (RTAs) are likely to overlap with other RTAs. When such overlaps occur, firms must choose the tariff rates from multiple RTAs. By employing data on Japan's imports by tariff schemes, we investigate how RTA tariff rates affect firms' decisions on tariff schemes when multiple RTAs exist. Our finding is that RTA utilization rates are higher when tariff rates for that RTA are lower (own effect) and tariff rates for alternative RTAs are higher (cross effect). We also found that the absolute magnitudes of own and cross effects are larger in bilateral and multilateral RTAs, respectively.

Kazunobu Hayakawa, Shujiro Urata and Taiyo Yoshimi

2019

Review of International Economics, Vol.27, Iss.2 (May): 578-593

Global and regional integration of financial markets with enhanced international monetary transactions between economic agents increases the exchange rate risk. As this obstacle is growing at speed, market integration should be developed with a view to avoid this risk. In this study, we investigate exchange rate pass-through (ERPT) to examine who takes this risk. Specifically, we estimate the degree of ERPT for individual products by using primary auction price data of used/second-hand construction machinery purchased in Japan and then exported to Thailand for resale. Our empirical analysis of these data at the individual product level enables us to avoid bias in estimating ERPT caused by the use of aggregated data. We find that ERPT is asymmetric and changes in exchange rates are reflected in baht-denominated resale prices only when the baht appreciates against the yen. This indicates that raising resale prices in the destination market is more difficult for the exporters than lowering them, meaning that they can suffer significantly from the exchange rate risk. This paper serves as a reference for a safer financial market by learning how market players are influenced by the exchange rate in a trade market with a unique dataset.

Kai Po Jenny Law, Eiji Satoh and Taiyo Yoshimi

2018

North American Journal of Economics and Finance, Vol.46 (November): 261-271

Tariff rates under a free trade agreement (FTA) are not necessarily used in the majority of trade, even among members of an FTA. One of the causes of this phenomenon is the presence of rules of origin (RoOs), which require exporters to comply with specific conditions when utilizing an FTA scheme. To consider how RoOs should be designed so that exporters can more robustly use an FTA scheme, this paper investigates the effect of exchange rates on FTA scheme utilization with a focus on RoOs. Exchange rates affect exporters' compliance with RoOs by changing the so-called value-added ratio, which is defined as [1 – (Price of imported inputs from non-FTA member countries/Export product price)]. Based on a model of pricing-to-market, we propose that an unexpected depreciation of exporters' currency against importers' currency improves the value-added ratio through a rise in the export product's price, which in turn enhances exporters' utilization of an FTA scheme. We also show strong empirical support for the proposition using the detailed product-level data on FTA scheme utilization in Korea's imports from Association of South East Asian Nations (ASEAN) countries.

Kazunobu Hayakawa, Han-Sung Kim and Taiyo Yoshimi

2017

Journal of International Money and Finance, Vol.75 (July): 93-108

In this paper, we examine the welfare cost of renouncing monetary policy autonomy in a model that includes labor mobility and pricing-to-market (PTM) behavior in firms. We find that renouncing monetary policy autonomy becomes a cost of currency integration when the consumption basket weights differ between candidate countries and when country-specific total factor productivity (TFP) shocks hit economies, even when the union fulfills the classic optimum currency area theory of labor mobility. We also found that a firm's PTM behavior has a significant effect on the welfare implications of currency integration combined with labor mobility. For instance, currency integration does not produce greater welfare losses in the PTM case (where the labor input weights differ across member countries and asymmetric labor disutility shocks occur), although greater welfare losses arise in the case of producer currency pricing.

Taiyo Yoshimi

2016

Global Economic Review, Vol.45, No.1 (February): 78-96

In the present paper, we constructed a DSGE model with two types of workers with heterogeneous wage contracts, unionized and non-unionized wages, to investigate macroeconomic dynamics and welfare implications. The innovative feature of this paper is to examine direct substitution effects between workers with both types of wage contracts by introducing firms that jointly employ them. It is revealed that the macroeconomic volatility and welfare loss to asymmetric labor productivity shock increased and decreased with the elasticity of substitution between two types of workers and labor unions' bargaining power, respectively. Furthermore, those of monetary policy shock increased with labor unions' bargaining power, which implies that better monetary policy design is more important when unions are more influential.

Muneya Matsui and Taiyo Yoshimi

2015

Economic Modelling, Vol.49 (September): 72-80

We investigate the welfare implications of monetary policy arrangements in a small open economy, considering firms' bank-based finances that are widely observed in emerging ASEAN countries. The impact of an unexpected change in the lending rate spread, or a lending rate spread shock, depends on the presence of banking activity in the economy. This presence is important in Malaysia and Vietnam, where welfare effects of this type of shock are at least comparable to those of foreign monetary policy shocks. We also find that a rigid exchange rate arrangement amplifies the effect of a shock.

Taiyo Yoshimi

2014

Asian Economic Journal, Vol.28, No.1 (March): 19-39

We assess whether renouncing monetary policy autonomy becomes a cost of currency integration under labor mobility in the framework of the New Open Economy Macroeconomics. Assuming Nash equilibrium among central banks of candidate countries, we find that the forfeiture of monetary policy autonomy becomes a cost when country-specific total factor productivity shocks hit them, labor input weights differ between candidate countries, and country specific shocks on marginal disutility of labor occur. These finer points suggest that it cannot generally be concluded that there is no cost of currency integration under labor mobility, as discussed in the classic Optimum Currency Area theory.

Taiyo Yoshimi

2014

Journal of Economic Integration, Vol.29, No.1 (March): 188-209

We construct a DSGE model with heterogeneity in wage rigidity, and compare the welfare effects of several monetary policy rules, including the standard Taylor rule. We find that monetary policy rules considering wage inflations improve the welfare by stabilizing employment against the labor productivity shock. Further, a monetary policy rule with consideration for the inflation of wages which are adjusted more frequently, namely more flexible wage inflation, becomes better than one with consideration for less flexible wage inflation. It realizes smaller welfare loss than the standard Taylor rule when the weight on the labor disutility in the household's utility function is sufficiently large.

Muneya Matsui and Taiyo Yoshimi

2013

Review of Integrative Business and Economics Research, vol.2, issue 2 (July): 489-520

This paper focuses on recent events which include the RMB reform in China and the global financial crisis to investigate statistically recent diverging trends among East Asian currencies. For the purpose, their weighted average value (Asian Monetary Unit: AMU) and their deviations (AMU Deviation Indicators) from benchmark levels are used to analyze both β and σ convergences of East Asian currencies. Our analytical results show that the monetary authority of China has still kept stabilizing the exchange rate of the Chinese yuan against only the US dollar even though it announced its adoption of a managed floating exchange rate system with reference to a currency basket. Analytical results on β and σ convergences show that deviations among the East Asian currencies have been diverging in recent years, especially after 2005. The widening deviations reflect not the RMB reform but recent international capital flows and the global financial crisis. In addition, it is important as its background that the monetary authorities of the countries are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intraregional exchange rates in East Asia.

Eiji Ogawa and Taiyo Yoshimi

2010

International Journal of Intelligent Technologies and Applied Statistics, vol.3, No.2 (June): 235-261

Using panel data for 17 Organization for Economic Co-operation and Development (OECD) countries for the period 1983-2003, this paper investigates the effects of financial integration on specialization and international structural similarity. Theoretically, financial integration motivates countries to specialize on the basis of their comparative advantages and decreases the structural similarity between them. Our empirical analyses support the hypothesis.

Taiyo Yoshimi

2009

The International Economy, No.13 (November): 50-64

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.

Uraku Yoshimoto, Kiyotaka Sato, Takatoshi Ito, Junko Shimizu, Yushi Yoshida and Taiyo Yoshimi

2025

NBER Working Paper, No.33748 (May)

We examine the determinants and the dynamics of the exchange rate pass-through of the Japanese exporters, utilizing the official Customs declaration data. We first estimated the invoicing currency exchange rate pass-through and found that export prices invoiced in producer currency are the most rigid. Among local currency or vehicle currency use, US dollar invoicing is relatively more rigid than non-US dollar invoicing. The destination exchange rate pass-through estimates for local currency invoicing are between 35 and 40 percent, whereas those for Japanese yen or US dollar invoicing are close to complete. In addition, we find these discrepancies are even more accentuated in the longer run by analyzing the dynamics of the exchange rate pass-through.

Yushi Yoshida, Takatoshi Ito, Junko Shimizu, Kiyotaka Sato, Taiyo Yoshimi and Uraku Yoshimoto

2025

NBER Working Paper, No.33454 (February)

This study utilizes the granular Japanese customs data from 2014 to 2020 to examine the exchange rate pass-through (ERPT) to Japanese import prices. It mainly focuses on the impact of the invoicing currency choice on ERPT. The ERPT elasticity in products invoiced in the exporter's currency is greater than those invoiced in yen. In the full sample analysis, the ERPT elasticity was 0.75 for products invoiced in the exporter's currency, compared to about 0.19 for yen-invoiced products. We find the same tendency for imports from two Asian powerhouses: China and Thailand. There is no significant difference in the ERPT elasticity between products invoiced in the exporter's currency and those invoiced in a third currency (i.e., a currency other than yen or the exporter's currency). In addition, an asymmetric pass-through is found, namely the ERPT during the appreciation phase of the yen is higher than during the depreciation phase. This finding is interpreted that foreign exporters strengthen their pricing-to-market behavior during the yen depreciation phase to maintain their market share.

Taiyo Yoshimi, Uraku Yoshimoto, Takatoshi Ito, Kiyotaka Sato, Junko Shimizu and Yushi Yoshida

2024

NBER Working Paper, No.32910 (September)

Revised and resubmitted: Journal of the Japanese and International Economies

In this study, we use microdata from Japanese customs declarations and calculate semiannual invoice currency shares by country, both on a value and transaction basis. From country-level data, we can confirm the following: First, the impression that Japan's trade is biased toward the U.S. dollar (USD) is mainly due to choices in the U.S., China, and resource-rich countries with large trade volumes. Second, the yen invoicing is selected on a value basis and an even larger transaction number basis, and the local currency invoicing is also used on a bilateral country basis. Third, the choice of invoice currency has changed in recent years. From 2014 to 2020, the USD lost the most shares, falling in 23 of the 34 countries. By conducting an empirical analysis exploring the determinants of invoice currency, our main findings confirm that the intermediate goods trade share has the effect of reducing Yen and increasing USD invoicing in export, while the higher the inflation gap, the more likely one is to use USD invoicing, which suggests that Japanese firms will be further exposed to foreign exchange risk in the future.

Shimizu, Junko, Kiyotaka Sato, Takatoshi Ito, Yushi Yoshida, Taiyo Yoshimi and Uraku Yoshimoto

2024

PRI Discussion Paper, No.24A-02 (August)

Raw milk production in Japan is subject to various restrictions, including mandating sales to agricultural cooperatives, limits to inter-regional mobility of raw milk, and differentiated prices of raw milk for different dairy products with no say from raw milk farmers. These institutional barriers contribute to inefficiency in production. This paper estimates a translog cost function of raw milk production from individual Japanese dairy farms. Using newly-available farm-level data from 2008 to 2017, we examine the degree of scale economies in raw milk production. Our findings indicate the following: (i) Economies of scale do exist in raw milk production in Japan. The total cost increases only by 0.67% for a 1% increase in production. (ii) Substitutability exists between labor and equipment, suggesting the potential for improving productivity by introducing more mechanization (automation). Simulation analyses, based on the estimated cost function, are conducted to measure the impacts of removing institutional rigidities (multiple prices; regional division of markets) on the profitability of dairy farms by farm scale and region. Results show that removing institutional rigidity tends to increase the profitability of Japanese dairy farms in general, but the magnitude of the effect impact varies across farm scales and regions.

Ayano Sato, Taiyo Yoshimi and Takatoshi Ito

2024

IERCU Discussion Paper No.402 (May)

This study examines how the payment method affects the choice of invoicing currency. Focusing on Turkish textile and clothing exports, it finds that exporters using the open account method, where payment is made after goods are received, prefer to invoice in their home currency (Turkish lira) to mitigate exchange rate risks associated with foreign currencies. This preference is more pronounced among small and medium-sized enterprises. We also find that the euro, the predominant foreign currency in our Turkish sample, is less likely to be used under the OA method. Additionally, the Turkish lira is more likely chosen as the invoicing currency when its value is higher, when exporting to fewer countries, or by less productive exporters.

Kemal Türkcan, Yushi Yoshida and Taiyo Yoshimi

2024

Available at Research Square (May)

Japanese exporters' choice of invoice currencies is investigated using newly available official Customs declaration data, which records detailed information, including the trading partners' names, invoicing currency, and product descriptions. The strategic complementarity mechanism, that is, choosing the same invoice currency as others in the same industry or the same destination market, is found among Japanese exporters. We propose the “broad two-way exporters” whose export destinations and import origins do not necessarily match and the “narrow two-way exporters” whose export destination and import origins match in the same year. It is found that currency matching for exports and imports is as essential as strategic complementarity for two-way exporters, regardless of dominant currency, producer currency, or local currency invoicing. However, as one of this paper's novelty, we found evidence that newly entering two-way exporters are less concerned about currency matching. Therefore, the currency matching mechanism for two-way exporters is gradually formed as they continue to survive in international markets.

Yushi Yoshida, Junko Shimizu, Takatoshi Ito, Kiyotaka Sato, Taiyo Yoshimi and Uraku Yoshimoto

2024

NBER Working Paper, No.32276 (March)

This study explores the evolution of invoicing currency choice, focusing on inertia in invoicing currency and the role of export experience. We theorize that inertia in the producer's currency pricing (PCP) weakens with lower forex risk management costs, whereas inertia in foreign currency pricing is more pronounced under similar conditions. For the export experience, exporters tend to adopt PCP when they start exporting if the costs are significant. Empirical analysis using firm-level export data in Thailand from 2007 to 2014 supports these predictions. Specifically, we show that the inertia in PCP diminishes with access to forward exchange contracts or when the importer's currency has a higher forex turnover than the Thai baht. We also show that the tendency to adopt PCP in first exports diminishes under these conditions. Our findings imply that exporters initially prefer invoicing in their own currency, but this preference decreases as export experience accumulates or if there are financial tools or favorable currency turnover conditions.

Kazunobu Hayakawa, Nuttawut Laksanapanyakul, Toshiyuki Matsuura and Taiyo Yoshimi

2024

KeioIES Discussion Paper Series, DP2024-005 (March)

This study empirically investigates how the invoice currency choice differs between intra-firm and arm's-length exports. We also examine whether other firm- and product-level characteristics affect the choice of invoice currency. This study is the first to be granted access to highly disaggregated transaction-level trade data for Japan. Focusing on Japanese automobile exports to France, we demonstrate that the importer's currency tends to be chosen in intra-firm export invoicing based on a panel logit estimation. Our empirical findings remain robust when different types of intra-firm export variables and other conventional explanatory variables are introduced, such as firm and product market share, exchange rate volatility, a dummy for intermediate goods exports, euro-invoiced imports, labor productivity, and research and development intensity. Given growing intra-firm trade and expanding global value chains, Japanese parent firms tend to invoice in the importers' currency, assuming the foreign exchange risk that arises from intra-firm trade. Thus, exchange rate risk management is a significant consideration for Japanese parent firms.

Taiyo Yoshimi, Uraku Yoshimoto, Kiyotaka Sato, Takatoshi Ito, Junko Shimizu and Yushi Yoshida

2024

NBER Working Paper, No.32142 (February)

This study examines the determinants of invoice currency with a focus on the effect of export experience, based on a questionnaire survey of Japanese small and medium enterprises (SMEs) in the manufacturing industry. We find that exporters with extensive export experience tend to switch the invoice currency from the Japanese yen to foreign currencies. The interpretation is that export experience mitigates the exchange rate uncertainty faced by firms and enables them to use foreign currency in their exports. This effect persists even if firms intermittently export from their first exports. We also find that the yen is more likely to be chosen as the first export when the age of the exporter is higher, the sales value of the exporter is smaller, the exporter has an initiative to determine the invoice currency, and the exporter started exporting before the global financial crisis in 2007.

Mizuki Goto, Kazunobu Hayakawa, Satoshi Koibuchi and Taiyo Yoshimi

2023

Available at SSRN (December)

A high-productivity exporter can gain a stronger position over an importer in determining how and when payment is made. With the lower risk associated with exporters, cash-in-advance (CIA) payment is their preferred method of payment. However, a baseline probit regression for the Turkish export dataset at the transaction level did not find a positive relationship between exporters' productivity and CIA. This puzzling finding is reconciled when we consider the financial conditions of importers, which may not allow for advance payment, especially for a large cash transaction. We find that increasing transaction size discourages the use of CIA payments. We also find that the productivity of exporters is associated non-linearly, i.e., in an inverted-U shape, with the use of CIA payments.

Yushi Yoshida, Kemal Türkcan and Taiyo Yoshimi

2022

RIETI Discussion Paper, 22-E-051 (May)

Recent empirical studies explore factors behind the currency invoicing pattern in exports of listed firms by using questionnaire surveys; however, there is insufficient evidence regarding small and medium-sized enterprises (SMEs). We conducted a questionnaire survey for 2,100 unlisted manufacturers engaged in exports during the 2010s and received responses from 300 firms. By constructing a database with invoice currency choice and trade partner by export destination, we empirically examine the determinants of invoice currency choice in export using the probit model estimation. We confirm that the major determinants of currency invoicing in existing research effectively work as determinants of currency invoicing by SMEs. After controlling for various determinants, we found that financial constraints play an important role in their invoice currency choice. The firms with deteriorated capital ratios and rapid sales growth depend more on the producer's currency invoicing. The results are confirmed through a robustness test using detailed financial data, showing that the firms with lower capital ratios, lower liquidity positions, and greater investment opportunities tend to use the producer's currency invoicing. These novel findings are consistent with the predictions from the theoretical research on the bargaining model of currency invoicing and corporate risk management for hedging.

Mizuki Goto, Kazunobu Hayakawa, Satoshi Koibuchi and Taiyo Yoshimi

2021

RIETI Discussion Paper, 21-E-080 (October)

The purpose of this study is to analyze the factors that promote the usage of local currencies in Japanese trade in Asia by utilizing a large-scale firm-level questionnaire survey in 2018 on Japanese overseas subsidiaries in Asia and to discover why the usage of Asian currencies has increased recently. The major findings are as follows: first, with respect to the choice of invoicing currency, subsidiaries with large sales tended to choose the U.S. dollar while those with small sales tended to choose the yen or local currency; second, subsidiaries established for sales to the local market tended to choose the local currency; third, overseas subsidiaries tended to unify the transaction currency on both the import and export sides, a practice called the natural hedge; fourth, subsidiaries with large local currency borrowing, a high share of local procurement, and a joint venture with local firms who try to maximize their profits measured using local currency, tend to adopt local currency invoicing. These results suggest that the role of the U.S. dollar as the main invoice currency is in decline, as Japanese exporting firms move away from using Asian subsidiaries as a platform to export to the United States and increasingly use Asian subsidiaries as a local sales base in Asian countries and an export platform to China and back to Japan.

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu and Taiyo Yoshimi

2021

RIETI Discussion Paper, 21-E-016 (March)