Exchange Rate Exposure and Exchange Rate Risk Management: The case of Japanese exporting firms

Author Name ITO Takatoshi (Faculty Fellow, RIETI) / KOIBUCHI Satoshi (Chuo University) / SATO Kiyotaka (Yokohama National University) / SHIMIZU Junko (Gakushuin University)
Creation Date/NO. April 2013 13-E-025
Research Project Research on Exchange Rate Pass-Through
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In this paper, we estimate Japanese firms' exchange rate exposure and investigate the impact of exchange rate risk management on them. By using the results of the questionnaire survey sent to all Tokyo Stock Exchange listed firms in 2009, we conduct empirical analysis to investigate whether each risk management tool—financial and operational hedging, the choice of invoice currency, and the price revision strategy (pass-through)—specifically affects their foreign exchange exposure. As a result, we confirm the following characteristics: first, firms with larger dependency on foreign markets have larger foreign exchange exposure. Second, the higher is the U.S. dollar invoicing share, the larger is the foreign exchange exposure, but it is reduced by using both financial and operational hedging. Third, yen invoicing itself reduces the foreign exchange exposure. These findings indicate that Japanese firms utilize operational and financial hedging strategies and price revision policy depending on their choice of invoicing currency.

Published: Ito, Takatoshi, Satoshi Koibuchi, Kiyotaka Sato, and Junko Shimizu, 2016. "Exchange rate exposure and risk management: The case of Japanese exporting firms," Journal of the Japanese and International Economies, Vol. 41, pp. 17-21