Managing Currency Risk

How Japanese Firms Choose Invoicing Currency

Takatoshi Ito, Professor, School of International and Public Affairs, Columbia University, US, Senior Professor, National Graduate Institute for Public Studies, Japan and RIETI, Satoshi Koibuchi, Professor, Faculty of Commerce, Chuo University, Japan and RIETI, Kiyotaka Sato, Professor, Department of Economics, Yokohama National University, Japan, Adjunct Professor, School of Business and Law, Edith Cowan University, Australia and RIETI and Junko Shimizu, Professor, Faculty of Economics, Gakushuin University, Japan and RIETI

This book demonstrates how exporters’ decisions regarding choice of invoice currency can be influenced by many factors including firm size, product competitiveness, intra/inter-firm trades, and the geography of export destination. The aim is to enhance our understanding of exporters’ behavior in terms of managing currency risk. It contains detailed research and insightful data focusing on Japanese exporters and shows how they face an important trade-off in choosing the invoice currency. If exports are invoiced in yen, then exchange rate fluctuations will pass through to retail prices ultimately affecting sales volumes. However, if they choose to invoice in the importer’s currency, then sales volumes are largely unchanged.

‘‘n Managing Currency Risk, Takatoshi Ito and a team of collaborative scholars ... have returned with a brilliant new piece of research on how international currencies get defined and used. Well-written, concise and with a new approach to international currencies as well as conclusions that can be extended beyond the yen, this book will be useful for students of international finance, analysts who delve into international currencies, financial managers and renminbi trackers.’
– Oscar Ugarteche, LSE Review of Books

‘This is an important book that gives us a detailed look into why Japanese firms do business. Rather than just rely on regressions, the authors do something rarely seen in economics: they talk to their data by conducting surveys and interviews with Japanese firms. This method adds a tremendous richness to their analysis.’
– David E Weinstein, Columbia University, US

‘This book is a spectacular achievement. Based on unique interviews and questionnaire surveys, it provides various insights on the invoicing currency behavior of Japanese exporters. It will be useful not only for academic research but also for policymakers.’
– Shin-ichi Fukuda, University of Tokyo, Japan

‘This book employs new data sets based on both interviews and questionnaire surveys of Japanese manufacturing firms operating globally. The information is used to obtain novel and convincing findings regarding the determinants of invoice currency choice and currency risk management by focusing on export destination, arm’s-length vs. intra-firm trades, and types of subsidiaries.’
– Eiji Ogawa, Hitotsubashi University, Japan