Exchange Rate Risk Management of Export Firms: New findings from a questionnaire survey

In this paper, we present new findings of Japanese firms' exchange rate risk managements based on a questionnaire survey sent to all Tokyo Stock Exchange listed firms in 2009. Using their responses, we conduct empirical analysis to investigate the relation between respective risk management tools including the choice of invoice currency and the price revision strategy (pass-through). Results show the following: first, firms with higher sales and greater dependency on foreign markets more actively engage in currency hedging including financial and operational hedging. Second, Japanese firms use both financial and operational hedging complementarily. Third, U.S. dollar invoicing is supported by both financial and operational hedging. Fourth, yen-invoicing substitutes for both financial and operational hedging. Fifth, pass-through also substitutes for financial hedging. These findings indicate that Japanese firms use operational hedging, financial hedging strategies, and pass-through policies depending on their choice of invoicing currency.