This paper was published in Issue 160 of the Financial Review by the Policy Research Institute, Ministry of Finance. The research team led by Professor Junko Shimizu analyzes invoice currency choice and exchange rate pass-through using customs declaration data.
Key Points
1. Research Background and Objectives
- Authors: Junko Shimizu, Takatoshi Ito, Kiyotaka Sato, Yuji Yoshida, Taiyo Yoshimi, Ura Yoshimoto
- Research Question: Currency choice patterns in Japan's trade transactions and the impact of exchange rate fluctuations on prices
- Data: Detailed transaction-level information from customs declaration data
- Significance: Essential analysis for understanding exchange rate risk management and international competitiveness
2. Characteristics and Advantages of Customs Declaration Data
- Detail: Includes invoice currency information for individual transactions
- Comprehensiveness: Census data covering all import/export transactions
- Time Series: Enables tracking of currency choice changes
- Differentiation from Previous Studies: Allows analysis impossible with aggregated data
3. Invoice Currency Shares by Country and Factor Analysis
- Characteristics of Yen-denominated Transactions:
- Relatively high share in exports to Asia
- Local currency denomination predominant for developed countries
- Dollar Dominance: Role of the dollar as a third-country currency
- Determinants:
- Trading partner characteristics
- Degree of product differentiation
- Market competition intensity
4. Intra-firm Trade and Invoice Currency Choice
- Multinational Corporation Specificity:
- Currency choice patterns in headquarters-subsidiary transactions
- Internalization of risk management
- Stability of Currency Choice: Less currency switching in intra-firm trade
- Strategic Considerations: Group-wide exchange risk optimization
5. Strategic Complementarity and Currency Matching
- Strategic Complementarity: Tendency to follow competitors' currency choices
- Role of Market Practices: Currency usage conventions by industry and region
- Network Effects: Self-reinforcing mechanism of specific currency usage
- Policy Implications: Path dependence in currency internationalization
6. Exchange Rate Pass-Through Analysis
- Pass-through to Export Prices:
- Complete pass-through is rare; partial pass-through is common
- Pass-through rates differ by invoice currency
- Impact on Import Prices:
- Different pass-through patterns for consumer and intermediate goods
- Differences in pass-through rates due to market structure
- Asymmetry: Different pass-through behavior during yen appreciation vs. depreciation
7. Main Research Findings
- Theoretical Contributions:
- Analytical framework considering endogeneity of currency choice
- Empirical evidence of strategic interactions
- Empirical Discoveries:
- Specificity of Japanese firms' currency choices
- Incompleteness of exchange rate pass-through and its factors
- Methodological Innovation: Sophisticated analysis using micro data
8. Policy Implications
- Yen Internationalization: Obstacles and facilitating factors for expanded usage
- Corporate Exchange Risk Management: Optimal currency choice strategies
- Macroeconomic Policy: Evaluation of exchange rate fluctuation impacts on real economy
- Trade Policy: Consideration of currency clauses in FTAs
This research clarifies the reality of currency choice and exchange rate pass-through in Japan's trade that could not be revealed by previous studies by using detailed micro data from customs declarations, making important contributions in both theoretical and empirical aspects.