Choice of Invoicing Currency: New evidence from a questionnaire survey of Japanese export firms

This paper is the first comprehensive research using a questionnaire survey on the choice of invoicing currency with all Japanese manufacturing firms listed in the Tokyo Stock Exchange. Questionnaires were sent out to 920 Japanese firms in September 2009, and 227 firms responded. We present new firm-level evidence on invoicing currency by the destination and type of trading partners, with a particular emphasis on the difference between arms-length and intra-firm trades. We also conduct cross-section analysis to investigate what determines the invoicing choice of Japanese firms. Our novel findings are as follows. (1) The invoicing choice depends on whether it is an intra-firm trade or an arms-length trade. While yen invoicing tends to be chosen in arms-length trades, there is a strong tendency that invoicing in the importer's currency is used in intra-firm trades, suggesting that the parent firm in Japan assumes and manages the currency risk. In exports to Asian subsidiaries, U.S. dollar invoicing is used. (2) Firm size does matter in the choice of invoice currency. The larger (smaller) the size of the firms, the more likely they are to conduct intra-firm (arms-length, resp.) trades. (3) In terms of the number of Japanese firms, using yen invoicing is more prevalent than U.S. dollar invoicing. However, adjusting for the export value of each firm, the share of U.S. dollar invoicing is on average larger than that of yen invoicing, mainly because Japanese firms with a large volume of exports tend to have a global sales and production network where U.S. dollar invoicing is dominant, especially in the case of "triangular trade."