PRI Discussion Paper Series (No.24A-02)

Invoice Currency Choice and its Determinants in JapaneseTrade: New Evidence from Japanese Customs Data
Faculty of Economics, Gakushuin University, Japan / Policy ResearchInstitute, Ministry of Finance, Japan

Junko SHIMIZU
Department of Economics, Yokohama National University, Japan / Policy
Research Institute, Ministry of Finance, Japan

Kiyotaka SATO
School of International and Public Affairs, Columbia University, USA /NBER / National Graduate Institute for Policy Studies, Japan
Takatoshi ITO
Faculty of Economics, Shiga University, Japan / Policy ResearchInstitute, Ministry of Finance, Japan
Yushi YOSHIDA
Faculty of Economics, Chuo University, Japan / Policy ResearchInstitute, Ministry of Finance, Japan
Taiyo YOSHIMI
Policy Research Institute, Ministry of Finance, Japan
Uraku YOSHIMOTO

August 2024

The views expressed in this paper are those of theauthors and not those of the Ministry of Finance or
the Policy Research Institute.

Research Department Policy Research Institute, MOF
3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8940, JapanTEL 03-3581-4111

Invoice Currency Choice and its Determinants in Japanese Trade:
New Evidence from Japanese Customs Data *1
Junko SHIMIZU *2,7
Kiyotaka SATO *3,7
Takatoshi ITO *4
Yushi YOSHIDA *5,7
Taiyo YOSHIMI *6,7
Uraku YOSHIMOTO *7

Abstract
In this study, we use microdata from Japanese customs declarations and calculate semiannual
invoice currency shares by country, both on a value and transaction basis. From country-level data,
we can confirm the following: First, the impression that Japan’s trade is biased toward the U.S.
dollar (USD) is mainly due to choices in the U.S., China, and resource-rich countries with large
trade volumes. Second, the yen invoicing is selected on a value basis and an even larger transaction
number basis, and the local currency invoicing is also used on a bilateral country basis. Third, thechoice of invoice currency has changed in recent years. From 2014 to 2020, the USD lost the mostshares, falling in 23 of the 34 countries. By conducting an empirical analysis exploring thedeterminants of invoice currency, our main findings confirm that the intermediate goods trade share
has the effect of reducing Yen and increasing USD invoicing in export, while the higher the inflation
gap, the more likely one is to use USD invoicing, which suggests that Japanese firms will be further
exposed to foreign exchange risk in the future.
Keywords: Invoice currency share, Customs data, Trading partner
JEL Classification: F23, F31, F33∗1 This study is the result of research conducted jointly with the Policy Research Institute (PRI), which submitted an offer of use to

the Ministry of Finance based on the “Guideline on the utilization of Customs’ import and export declaration data in joint researchwith Policy Research Institute,” and received approval in February 2022. The views expressed in this research are those of theauthor’s personal responsibility and do not represent the official views of the Ministry of Finance or the Policy Research Instituteof the Ministry of Finance. The authors thank the staff at the PRI for the great research support they received, especially Kenta
Ando, Fumiharu Ito, and Shintaro Negishi, for the use of transaction-level microdata. Shimizu, Sato, Yoshida, Yoshimi and
Yoshimoto gratefully acknowledge financial support from the JSPS KAKENHI Grant (JP24K04962 to Shimizu, JP19H01504,
JP23H00836, JP23K25533 and JP23K17550 to Sato, JP22K18527 to Yoshida, JP20H01518, JP20KK0289 and JP23K20152 to
Yoshimi, and JP24K16379 to Yoshimoto), for financial support, respectively.
∗2 Corresponding author: Junko Shimizu, Faculty of Economics, Gakushuin University, Japan.
Email: junko.shimizu@gakushuin.ac.jp∗3 Department of Economics, Yokohama National University, Japan∗4 School of International and Public Affairs, Columbia University, USA/ NBER/ National Graduate Institute for Policy Studies, Japan∗5 Faculty of Economics, Shiga University, Japan∗6 Faculty of Economics, Chuo University, Japan∗7 Policy Research Institute, Ministry of Finance, Japan1

1.

Introduction
The Japanese Ministry of Finance has been publishing the shares of invoice currencies by trading partner

region on a semi-annual basis. This provided valuable data for understanding developments in the currencies thatJapanese firms choose for their imports and exports. However, information aggregated at the regional level wasstrongly influenced by the choice of countries accounting for large trade volumes and does not provide
information on the extent to which the yen or trading partner currencies are used in trade with individual trading
partner countries. In recent years, there has been a notable increase in the use of local currencies in Asian
countries. Still, the data aggregated for Asia did not make it possible to understand the situation accurately.
Regarding the use of invoice currencies, the pattern observed for Japan is somewhat of a puzzle: although
Japan is a developed country, Japanese firms are more likely to invoice their exports and imports in a thirdcountry currency, the U.S. dollar (USD), than the yen – even in trade with emerging Asian economies. Thispattern differs from that observed for major advanced countries and conflicts with stylized facts regarding theuse of invoice currencies (outlined below). Various studies, such as Ito et al. (2010, 2013, 2016, 2018, 2021) andShimizu et al. (2021), have investigated this puzzle through interviews with firms and questionnaire surveys.
The studies suggest that firms’ foreign exchange risk management is the main reason. As Japanese firms have
expanded their supply chains across Asia through overseas subsidiaries, they have adopted the USD to conduct
intra-firm trade, with the corporate finance division at the headquarters in Japan collectively managing foreignexchange risk. However, the sample sizes and response rates of such surveys are limited. Against this background,calculating and analyzing the shares of invoice currencies by trading partner country based on Japanese customs
data can help to address a range of crucial issues, such as the actual use of the yen in trade invoicing and what
factors are contributing to the use of the yen or other currencies in trade invoicing.
To address these issues, in the current study, we calculate country-level invoice currency shares, both on avalue basis and on a transaction basis, using Japanese customs data, and examine developments in invoicecurrency shares of the yen, the USD, and partner country currencies at the country level. This provides valuable
information for considering future corporate currency risk management and the government’s international
economic policies. Notably, such information on invoice currency shares by country is likely to provide a
valuable reference for firms newly entering trade transactions. Furthermore, finding the determinants of invoicecurrency choice will allow us to discuss how the recent supply chain restructuring will affect the invoice currency
choice.
The remainder of this study is organized as follows. Section 2 presents some theoretical considerations andstylized facts on the choice of invoice currency and provides characteristics of Japanese firms’ choice of invoicecurrency from trade statistics published by the Ministry of Finance. Section 3 explains the invoice currency sharedata calculation by trading partner countries conducted for this study and the countries considered. Section 4
provides an overview of the results of currency share by country. In Section 5, using the currency share bycountry as a dependent variable, we conduct a panel analysis to investigate what country factors significantly
affect currency invoicing. Section 6 summarizes the empirical results and draws policy implications.

2.

Characteristics of Japanese Firm’s Choice of Invoice Currency
The yen’s nominal exchange rate against the USD followed a long-term appreciation trend from the end of

the Bretton Woods system in 1971 until 2012, albeit with some short-term fluctuations. Japanese firms have been
confronting the foreign exchange risk of substantial yen fluctuations. 1 The impact of exchange rate fluctuations
1 That said, the peak of the real effective exchange rate was in 1995.

2

on import and export prices, especially in the short term, varies greatly depending on which currency is used as
the invoice currency. If Japanese firms choose to export in yen, they are unaffected by exchange rate fluctuations
because their counterparts bear the exchange rate risk. This means that exporters pass entirely on exchange rate
fluctuations to their export partners. Conversely, when a Japanese firm exports in USD (or in the partner country’s
currency), the selling price in USD (or the partner country’s currency) in the destination country will be stable;
however, the Japanese exporter will bear any gains or losses from exchange rate fluctuations. This latter pricing
behavior is called zero exchange rate pass-through (ERPT) or complete pricing-to-market (PTM), where export
prices are stable in the destination country’s currency.
Let us consider a concrete example. For exports denominated in USD, the yen amount received is the USD
export price multiplied by the yen-dollar exchange rate. Therefore, when the yen weakens against the USD, theamount received in yen increases, which has a positive impact on firms’ profits and is likely to raise their shareprices. On the other hand, for imports denominated in USD, the amount paid in yen equals the USD import pricemultiplied by the yen-USD exchange rate. Hence, a yen depreciation increases import payments. If this increasein import payments is passed on to consumer prices, domestic prices will rise, resulting in cost-push inflation.
Thus, the choice of invoice currency and the ERPT/PTM are interrelated and can significantly impact firms’
profits and domestic prices.
Many studies have examined the choice of invoice currency. Among the first was Grassman (1973, 1976),
who highlighted that trade in industrial products among developed countries tended to be invoiced in theexporting country's currency (referred to as Grassman’s Law). This gives rise to the following stylized fact:
Stylized Fact 1: Trade in industrial products between developed countries is invoiced in the exporting country's
currency.
Moreover, it has been pointed out that trade between developed and developing countries tends to be
invoiced in the currency of the developed country (Grassman, 1973; Page, 1977, 1981). This tendency in theinvoice currency choice is easy to understand if one considers that when developed countries export
manufacturing products to developing countries, they are better positioned to negotiate export contracts thandeveloping countries. Therefore, the next stylized fact is as follows:
Stylized Fact 2: When manufacturing products are exported from developed countries to developing countries,
they are traded in the developed country’s currency.
Furthermore, McKinnon (1979) presents an important hypothesis regarding industry- and product-specificdifferences in invoice currency choice. This can be summarized as the following stylized fact:
Stylized Fact 3: Exports of differentiated goods are traded in the exporting country’s currency. Homogeneous
goods such as crude oil are traded in the international key currency such as the USD.
The puzzle mentioned earlier is that Japan's patterns regarding invoice currency use do not fit these stylized
facts. To illustrate this, Table 1 shows the shares of total exports and imports of the six major countries in 1980,
2000, and 2019, invoiced in their currencies and USD. The table shows that for Japan, the share invoiced in its
currency is relatively low for both exports and imports. In contrast, the share invoiced in USD is still very high3compared to other countries, even though it has declined recently. In 2019, for example, 49.7% of Japan’s exports
were invoiced in USD, about 12 percentage points higher than the share invoiced in yen. The pattern isparticularly pronounced for Japanese imports, with only 25.5% of Japan’s imports in 2019 invoiced in yen, while
67.4% were invoiced in USD. Looking at the corresponding shares for other major developed economies showsthat for Germany, the share of its currency has been high since the days of the German mark, exceeding 75% forboth imports and exports. France and Italy, which had a low currency share before the introduction of the euro,
have benefited from the single currency, the euro, and now have their currency shares of more than 70%. As the
key currency nation for the U.S., the share of imports and exports invoiced in its currency, the USD, is as highas 95%. Unlike their counterparts in the U.S., who do not have to worry about exchange rate risk, at least in the
short term, Japanese firms, to a large extent, do not conduct trade in their currency. Still, Japanese firms use athird-country currency (the USD) or the partner country’s currency. Thus, they often suffer large exchange rate
fluctuations.
Table 1: Share of Invoice Currencies for Six Major Economies (%)
ExportShare of U.S. dollar

Share of Own Currency
1980

2000

2019

1980

2000

2019

U.S.

97.0

96.1†

95.7⁋

97.0

96.1†

95.7⁋

Japan

28.9

36.1

37.2

66.3

52.4

49.7

Germany

82.3

72.0‡

75.9

7.2

17.1‡

17.7

U.K.

76.0

50.0

37.7

17.0

29.0

32.7

France

62.5

75.6

72.3

13.2

21.0

22.0

Italy

36.0

75.2⁑

82.3⁋

30.0

18.1⁑

14.1⁋

ImportShare of Own Currency

Share of U.S. dollar

1980

2000

2019

1980

2000

U.S.

85.0

93.2†

Japan

2.4

23.5

Germany

43.0

U.K.

2019

95.1⁋

85.0

93.2†

95.1⁋

25.5

93.1

70.7

67.4

72.7‡

77.4

32.3

18.7‡

20.2

38.0

47.0

24.8

29.0

34.0

43.6

France

34.1

74.9

74.2

33.1

21.0

23.4

Italy

18.0

71.0⁑

71.2⁋

45.0

24.9⁑

25.9⁋

Note: ⁑Data in 2001, ‡Data in 2002, †Data in 2004, ⁋ Data in 2018
Source: Ito et al. (2018), Chapter 2, excerpted from Table 2-1.

Next, look at changes in invoice currency shares by a trading partner based on Japanese invoice currency
share data by region published by the Ministry of Finance. First, the USD is the largest share of Japan's exports
to the U.S. For example, in the second half of 2022, 86.7% of Japan’s exports to the U.S. were invoiced in USD,
while the share invoiced in yen was only 13.2% (Figure 1-1). This situation has not changed since 1987, the firstyear these statistics were available. This high USD invoice share in Japan’s exports to the U.S. conflicts with
Stylized Fact 1. Moreover, Figures 1-2 show that more than 70% of Japan’s imports from the U.S. are also
invoiced in USD. Although the yen invoice share today is moderately higher than in the 1990s, it remained atonly 22.3% in the second half of 2022.
4

Figure 1-1: Share of Currency in Exports from Japan(a) World(b) U.S.

USD

JPY

JPY

(c) EU

USD(d) Asia

JPY

USD

5.0
4.0
3.0
2.0
1.0

JPY

EUR

USD

RMB(RHS)

2022

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

1983

0.0

1980

2022

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

100
90
80
70
60
50
40
30
20
10
0

1983

100
90
80
70
60
50
40
30
20
10
0

1980

2022

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

1980

2022

2019

2016

2013

2010

2007

2004

2001

1998

1995

1989

1992

1986

1983

1980

1983

100
90
80
70
60
50
40
30
20
10
0

100
90
80
70
60
50
40
30
20
10
0

THB(RHS)

Source: Ministry of Finance, Japan (https://www.customs.go.jp/toukei/shinbun/tuukahappyou.html)
Note: Data are published in semiannual figures, but data for the second half of each year are used in this table.

Figure 1-2: Share of Currency in Imports to Japan(a) World(b) U.S.

USD

EUR

2022

2019

2016

2013

2010

2007

2004

1998

1995

1992

1989

1986

2001

USD

3.5
3
2.5
2
1.5
1
0.5

JPY

USD

RMB(RHS)

2022

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

0
1980

2022

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

100
90
80
70
60
50
40
30
20
10
0

1986

100
90
80
70
60
50
40
30
20
10
0
1983

(d) Asia

1980(c) EU

JPY

1983

1980

2022

2019

2016

2013

2010

2007

JPY

USD

1983

JPY

2004

2001

1998

1995

1992

1989

1986

1983

100
90
80
70
60
50
40
30
20
10
0
1980

100
90
80
70
60
50
40
30
20
10
0

THB(RHS)

Source: Ministry of Finance, Japan (https://www.customs.go.jp/toukei/shinbun/tuukahappyou.html)
Note: Data are published in semiannual figures, but data for the second half of each year are used in this table.

5

Shimizu et al. (2021), Ito et al. (2018), and Ito et al. (2021) suggest that the following two factors explain
why Japanese firms’ exports are mainly invoiced in dollars. The first, as mentioned, is linked to managing foreignexchange risk: as supply chains through overseas subsidiaries have expanded, Japanese firms have sought tounify intra-firm trade in one currency, the USD, with the corporate finance division at the headquarters in Japan
managing foreign exchange risk. Second, Japanese firms face fierce price competition in overseas markets.
Competition is not limited to Western firms. Asian firms from South Korea and Taiwan are also competitors, andJapanese firms cannot afford to change their prices every time the yen-dollar exchange rate changes. Therefore,
Japanese firms use the PTM strategy to stabilize local selling prices and secure market share. This strategy isobserved mainly in Japan’s trade with Europe: more than 50% of Japanese exports to Europe are invoiced in thedestination country's currency, i.e., the euro. At the same time, the share of European exports to Japan (i.e.,
Japanese imports) invoiced in the yen has been on the rise since the 2000s and, in the first half of 2022, exceeded
60% for the first time with a value of 60.9%.
In Japan’s trade with Asia, the USD and the yen shares in Japanese exports are almost on par. This pattern
has remained unchanged since 1987, the first year these statistics were available. While most of Japan’s exports
to Asia are invoiced in two developed-country currencies, the yen and the USD, the fact that the share of yen
invoicing in Japan’s exports is below 50% and is on par with the share of USD invoicing conflicts with Stylized
Fact 2 in that much of the trade uses a third-country currency, the USD, rather than the yen or local Asiancurrencies. This pattern is even more pronounced in Japan’s imports from Asia. Although the USD share has
gradually declined since the 1990s and fell below the 70% level in 2019, the share of yen invoicing has notincreased. Instead, the decline in the USD share has been mirrored by a rise in the share of Asian currencies.
Data on trade with Asia invoiced in Asian local currencies, such as the Chinese yuan and the Thai baht, isavailable from 2012 onward and shows that the share of Japanese exports invoiced in yuan has risen from 0.5%
in late 2012 to 4.2% in the second half of 2022. On the other hand, the share of exports invoiced in Thai baht hasremained unchanged at around 1%. While looking at these shares alone might lead one to conclude that Japan’s
trade with other Asian countries is rarely invoiced in local currencies, this would be premature since these sharesare calculated as the local currency shares in Japan’s total trade with Asia, not in the bilateral trade between Japanand individual countries. Therefore, to understand the extent to which the yen and local currencies are used inbilateral trade, it is necessary to look not at regional data but at country-level bilateral trade. Such anunderstanding is essential both for firms’ currency risk management and the government’s international
economic policies, and providing the necessary information is one of the significant contributions of this study.

3.

Analysis Using Japanese Customs Data
This study forms part of the “Joint Research Using Export/Import Declaration Data,” for which the Ministryof Finance (MOF) publicly solicited applications in FY2021 based on the “Basic Policy on Economic and Fiscal
Management and Reform 2021” (Cabinet decision on June 18, 2021), which calls for making the best use of datacompiled by the government. For the analysis, we sort the microdata of import/export (2014–2020) held by Japan
Customs by invoice currency code and calculate the invoice currency shares. The procedures for exports andimports, respectively, are as follows:(a) For exports, the total number of transactions 2 and the total declared value are calculated using the invoicecurrency code for each destination country code.

2 The number of declaration columns is used. The same applies for imports.

6

(b) For imports, the total number of transactions and the total value on a customs valuation basis are calculatedusing the invoice currency code used for each country-of-origin code.
Based on the above data, we calculate the annual invoice currency shares of major currencies (USD, yen,and euro) and the destination/origin country currency by country, both on a value basis and in terms of the numberof transactions and examine developments in the invoice currency shares over the period from 2014 to 2020. 3
As sample countries, we used the top 34 countries to rank Japan’s export and import partners in 2020. A listof these countries and their shares in Japan’s exports and imports are shown in Tables 2. China is the top export
destination, accounting for 22.07% of Japan’s exports. While the U.S. (18.44%) is second, ranks three to sevenare taken up by other Asian countries, led by South Korea (6.97%) and Taiwan (6.93%), followed by Hong Kong
(4.99%), Thailand (3.98%), and Singapore (2.76%) – the top 34 countries in the table account for just under 95%
of Japan’s total exports.
Among import partners, China ranks first with 25.77%, far ahead of the U.S. (10.95%), followed byAustralia (5.63%), and then several Asian countries, led by Taiwan (4.21%), South Korea (4.18%), Thailand(3.74%), and Vietnam (3.46%). Oil-producing countries such as Saudi Arabia (2.89%) and the United ArabEmirates (2.56%) are ranked in the top 10. The top 34 countries account for over 93% of Japan’s total imports.

3 The reason for aggregating the invoice currency shares on an annual basis is that shares calculated on a more frequent basis –such as a monthly or semiannual basis – are unduly affected by larger-value import and export declarations.

7

Table 2: Ranking of Japan’s Export and Import Partner Countries in 2020
<Export>Ranking

Country<Import>

Value (1,000USD)

Share (%)

Ranking

Country

Value (1,000USD)

Share (%)

1

China

141,250,228

22.07%

1

China

163,842,431

25.77%

2

U.S.

117,998,858

18.44%

2

U.S.

69,625,747

10.95%

3

South Korea

44,587,147

6.97%

3

Australia

35,784,604

5.63%

4

Taiwan44,326,213

6.93%

4

Taiwan26,762,045

4.21%

5

Hong Kong

31,947,803

4.99%

5

South Korea

26,557,825

4.18%

6

Thailand

25,469,579

3.98%

6

Thailand

23,753,550

3.74%

7

Singapore

17,640,049

2.76%

7

Vietnam

22,025,435

3.46%

8

Germany

17,538,203

2.74%

8

Germany

21,273,953

3.35%

9

Vietnam

17,088,307

2.67%

9

Saudi Arabia

18,384,592

2.89%

10

Malaysia

12,569,861

1.96%

10

United Arab Emirates

16,305,587

2.56%

11

Australia

12,117,894

1.89%

11

Malaysia

15,898,744

2.50%

12

Netherlands

10,890,745

1.70%

12

Indonesia

15,477,546

2.43%

13

U.K.

10,698,313

1.67%

13

Canada10,931,577

1.72%

14

Indonesia

9,153,703

1.43%

14

Russia10,699,448

1.68%

15

India

9,091,201

1.42%

15

Italy

10,471,183

1.65%

16

Philippines

8,787,896

1.37%

16

Philippines

9,362,936

1.47%

17

Mexico8,375,102

1.31%

17

France9,238,268

1.45%

18

Canada7,228,848

1.13%

18

Qatar

9,139,655

1.44%

19

Belgium

6,540,010

1.02%

19

Singapore

8,550,761

1.35%

20

Russia5,870,453

0.92%

20

Switzerland

7,547,358

1.19%

21

France5,635,608

0.88%

21

Brazil

7,489,412

1.18%

22

United Arab Emirates

5,544,442

0.87%

22

Chile

6,982,832

1.10%

23

Switzerland

4,819,440

0.75%

23

Ireland

6,568,914

1.03%

24

Panama4,576,599

0.72%

24

U.K.

6,403,501

1.01%

25

Saudi Arabia

4,228,529

0.66%

25

South Africa

5,761,992

0.91%

26

Italy

3,770,360

0.59%

26

Mexico5,433,080

0.85%

27

Brazil

2,948,566

0.46%

27

India

4,713,717

0.74%

28

Poland

2,853,711

0.45%

28

Kuwait

4,535,828

0.71%

29

Turkey2,663,466

0.42%

29

Belgium

3,254,686

0.51%

30

Spain

2,156,720

0.34%

30

Spain

3,160,375

0.50%

31

Liberia

2,152,908

0.34%

31

Netherlands

3,091,714

0.49%

32

New Zealand

1,841,372

0.29%

32

Sweden2,823,070

0.44%

33

South Africa

1,667,207

0.26%

33

New Zealand

2,495,429

0.39%

34

Hungary

1,582,988

0.25%

34

Peru

2,329,383

0.37%

Others34,337,244

5.37%

Others39,029,874

6.14%

Total

639,949,573

100.00%

Total

635,707,052

100.00%Source: Japan's International Trade in Goods, Japan External Trade Organization (JETRO).

8

4.

Summary of Findings
We start by presenting a separate overview of the results for exports and imports. Table 3 shows the invoicecurrency shares (of the yen, USD, euro, and partner country currency) in Japanese exports in 2020 by trading
partner country both on a value basis and in terms of the number of transactions. Moreover, changes in theseshares from 2014 are shown in parentheses. Looking at the invoice currency shares (in value terms) in Japan’s
exports in 2020 shows that for ten of the top 34 export destinations (excluding the U.S.), the USD makes up thelargest share; for nine, the yen makes up the largest share; for 11, the destination country currency makes up thelargest share, and for four, another currency (the euro) makes up the largest share.
Looking at changes from 2014, the currency that saw the broadest decline in its invoicing share in Japanese
exports is the USD, with 22 out of the 34 countries registering a decrease in the USD share. On the other hand,
the invoice currency share of the yen increased for 20 countries, while the share of destination country currency
increased in the case of 23 countries. The table thus shows that the U.S. invoice currency share has been
decreasing while the shares of the yen and destination country currencies have been increasing. A closer look at
Asian countries reveals that the USD share has declined in Japanese exports to eight of the 11 countries. Taiwan,
Vietnam, and India are the exceptions, while the share of destination country currencies has been rising. Among
emerging market currencies, the largest increases in the destination country currency share were seen in exports
to China (+6.8 percentage points), Brazil (+5.7 percentage points), and India (+5.3 percentage points).
Next, comparing the shares based on value and the number of transactions shows several differences.
Regarding the number of transactions, the yen accounts for the largest invoice currency share in exports to 22
countries. In comparison, the destination country's currency accounts for the largest share of exports to anothersix countries. Only in exports to four countries (excluding the U.S.) does the USD account for the largest invoicecurrency share. Specifically, in exports to Asia, the yen accounts for most transactions with all countries,
suggesting that small-value transactions are invoiced in yen and high-value transactions are invoiced in dollars.
Examining Japanese firms’ choice of invoice currency through questionnaire surveys, Ito et al. (2018, 2021) andShimizu et al. (2021) showed that the larger a firm, the more likely it was to use the USD for invoicing, and thefact that this pattern is confirmed in the customs declaration data is a major finding. Compared to the shares in
2014, just like on a value basis, when focusing on the number of transactions, there are 24 countries for which
the share of Japanese exports invoiced in USD has declined. The share invoiced in the destination country
currency has increased in most cases. Among emerging market currencies, the largest increases in the shareinvoiced in the destination country currency were seen in exports to Brazil (+10.0 percentage points), China(+9.3 percentage points), and Russia (+9.1 percentage points).

9

Table 3: Invoice Currency Shares by Partner Country (Exports, 2020)
Currency Share in Value (2020)
U.S.dollar
China
Hong Kong
South Korea
TaiwanThailandAsia

Malaysia
Indonesia
Singapore
Philippines
Vietnam
India
Australia

Oceania

New Zealand
U.K.
Switzerland
Germany
Netherlands
FranceEuropeItaly
Spain
Belgium
RussiaPolandHungary
TurkeyU.S.
CanadaNorth &
Latin

MexicoAmerica
BrazilPanamaUnited Arab Emirates
Saudi Arabia
OthersSouth Africa
Liberia

Japanese yen

Currency Share in Number of Transaction (2020)
Partner Country

Euro

Currency

U.S.dollar

Japanese yen

Partner Country

Euro

Currency

47.5%

41.8%

0.3%

10.4%

36.1%

49.4%

0.3%

14.1%

(▲ 9.3%)(+2.4%)(+0.1%)(+6.8%)(▲ 9.9%)(+0.7%)(+0.1%)(+9.3%)

46.2%

51.5%

0.2%

1.8%

35.4%

61.9%

0.3%

1.5%

(▲ 9.0%)(+9.0%)(▲ 0.0%)(▲ 0.2%)(▲ 7.5%)(+7.0%)(▲ 0.0%)(▲ 0.1%)

34.3%

59.4%

0.2%

6.0%

23.7%

69.1%

0.3%

6.8%

(▲ 6.3%)(+3.4%)(+0.0%)(+3.1%)(▲ 3.8%)(+0.2%)(+0.1%)(+3.4%)

44.3%

52.1%

0.1%

3.3%

29.7%

64.6%

0.1%

5.3%

(+4.0%)(▲ 5.7%)(+0.0%)(+1.6%)(▲ 1.9%)(▲ 0.2%)(+0.0%)(+1.9%)

42.5%

41.6%

0.3%

15.5%

29.7%

52.7%

0.3%

17.1%

(▲ 2.6%)(▲ 2.1%)(+0.1%)(+4.5%)(▲ 3.3%)(▲ 1.6%)(+0.2%)(+4.6%)

47.4%

50.4%

0.2%

1.9%

33.2%

62.3%

0.1%

3.9%

(▲ 4.1%)(+3.9%)(+0.0%)(+0.1%)(▲ 1.6%)(+0.4%)(+0.0%)(+1.2%)

54.2%

39.0%

0.1%

6.6%

43.0%

48.8%

0.1%

7.9%

(▲ 3.5%)(+1.0%)(+0.1%)(+2.4%)(▲ 5.3%)(+0.5%)(+0.0%)(+4.6%)

59.2%

36.7%

0.5%

3.4%

38.2%

55.7%

0.4%

5.6%

(▲ 6.3%)(+5.7%)(+0.1%)(+0.3%)(▲ 3.1%)(+1.8%)(▲ 0.0%)(+1.3%)

55.3%

44.0%

0.1%

0.6%

40.2%

58.7%

0.1%

0.9%

(▲ 1.3%)(+1.1%)(+0.0%)(+0.1%)(▲ 3.4%)(+3.2%)(+0.0%)(+0.1%)

65.4%

34.2%

0.1%

0.1%

45.0%

54.3%

0.1%

0.3%

(+4.2%)(▲ 4.1%)(+0.0%)(+0.1%)(▲ 0.9%)(+0.6%)(▲ 0.0%)(+0.2%)

50.6%

38.7%

1.0%

9.6%

31.6%

55.5%

0.4%

12.4%

(+0.6%)
15.4%(▲ 5.4%)22.5%(▲ 0.4%)0.3%(+5.3%)
61.7%(▲ 3.5%)
16.4%(▲ 1.4%)55.4%(▲ 0.0%)0.4%(+4.9%)
27.6%

13.7%

46.5%

0.1%

36.8%

5.3%

71.4%

0.1%

21.3%

(▲ 4.2%)(▲ 5.8%)(▲ 0.1%)(+14.1%)(▲ 2.7%)(▲ 15.0%)(▲ 0.1%)(+17.5%)(▲ 10.1%)(+2.1%)(+0.1%)(+7.9%)(▲ 0.3%)(+6.5%)(▲ 0.1%)(▲ 6.2%)

27.0%

19.9%

16.1%

37.0%

11.7%

40.6%

29.5%

18.2%

(+6.0%)(+1.1%)(▲ 8.6%)(+1.4%)(+1.8%)(+3.6%)(▲ 3.4%)(▲ 2.1%)

48.1%

21.1%

4.4%

26.4%

14.7%

59.6%

16.7%

9.0%

(+8.7%)(▲ 11.7%)(▲ 2.2%)(+5.2%)(+6.0%)(▲ 1.5%)(▲ 1.5%)(▲ 3.0%)

12.0%

33.7%

53.7%

(▲ 1.3%)(▲ 1.1%)(+1.9%)

10.6%

23.9%

65.3%

(▲ 3.3%)(▲ 0.5%)(+3.7%)

7.3%

38.7%

53.9%

(+1.5%)(+17.5%)(▲ 19.1%)

11.6%

34.1%

53.8%

(+3.5%)(▲ 7.7%)(+4.1%)

10.8%

21.2%

67.9%

(+4.2%)(+2.0%)(▲ 6.2%)

7.5%

36.4%

56.0%

(▲ 3.8%)(+7.8%)(▲ 3.9%)

*
*
*
*
*
*

10.6%

43.1%

46.3%

(▲ 0.6%)(+1.0%)(▲ 0.2%)

7.9%

28.4%

63.1%

(▲ 1.1%)(+0.3%)(+0.4%)

9.2%

40.3%

50.5%

(+1.1%)(+2.2%)(▲ 3.3%)

8.3%

45.8%

45.7%

(+0.5%)(+1.2%)(▲ 1.7%)

6.8%

44.1%

49.0%

(+1.9%)(+11.1%)(▲ 13.1%)

8.6%

28.2%

63.1%

(+2.0%)(▲ 1.9%)(+0.1%)

*
*
*
*
*
*

15.1%

32.1%

15.7%

37.2%

12.9%

61.8%

7.6%

17.8%

(▲ 11.5%)(+7.9%)(+0.4%)(+3.3%)(▲ 12.4%)(+9.5%)(▲ 6.2%)(+9.1%)

24.8%

22.6%

51.1%

1.5%

9.2%

38.8%

51.5%

0.5%

(+14.4%)
6.7%(▲ 8.6%)18.0%(▲ 6.8%)(▲ 6.3%)
18.7%(+5.2%)
25.7%(▲ 15.9%)(▲ 5.1%)
74.6%(+3.5%)
54.5%(+23.2%)(▲ 3.0%)
0.1%
―
1.8%
(+0.3%)(+0.8%)
7.6%(▲ 0.2%)
16.3%(▲ 1.3%)(+1.6%)
23.9%(+3.5%)
45.1%(▲ 9.1%)(▲ 2.2%)68.3%(▲ 3.2%)
37.1%(+9.4%)(▲ 0.2%)
0.0%
―
1.5%
(+0.9%)

86.7%

13.0%

0.2%

(▲ 0.3%)(+0.2%)(+0.1%)

*

76.1%

23.7%

0.2%

(▲ 3.1%)(+3.0%)(+0.0%)

*

43.9%

9.2%

0.1%

46.8%

51.8%

27.3%

0.3%

20.6%

(▲ 8.8%)(▲ 1.2%)(+0.0%)(+10.1%)(▲ 4.6%)(+4.6%)(+0.2%)(▲ 0.1%)

65.9%

22.0%

0.4%

11.7%

69.5%

23.6%

0.2%

6.8%

(▲ 10.8%)(+1.4%)(+0.3%)(+9.1%)(▲ 11.4%)(+6.6%)(+0.1%)(+4.7%)

50.5%

39.7%

0.9%

8.9%

46.2%

39.2%

0.7%

13.9%

(▲ 10.6%)(+4.9%)(+0.2%)(+5.7%)(▲ 13.0%)(+3.0%)(+0.2%)(+10.0%)

33.4%

66.6%

(+5.0%)(▲ 5.0%)

0.0%
―

0.0%
―

18.4%

81.0%

0.4%

(▲ 27.1%)(+27.0%)(+0.1%)

0.0%
―

35.2%

60.0%

3.4%

1.4%

25.5%

72.8%

1.1%

0.6%

(+4.6%)(▲ 6.1%)(+0.4%)(+1.0%)(+0.1%)(▲ 1.1%)(+0.5%)(+0.5%)

35.8%

62.5%

1.3%

0.2%

63.8%

33.7%

2.0%

0.3%

(▲ 1.7%)(+1.1%)(+0.6%)(▲ 0.0%)(+0.4%)(▲ 1.3%)(+0.9%)(▲ 0.1%)

14.1%

38.2%

38.4%

9.2%

16.8%

47.8%

24.3%

10.9%

(+1.9%)(+6.8%)(▲ 4.1%)(▲ 4.8%)(+5.2%)(▲ 1.8%)(+1.5%)(▲ 5.0%)

41.0%

58.9%

(▲ 15.2%)(+15.2%)

0.1%
―

0.0%
―

1.0%

96.0%

2.4%

(▲ 4.7%)(+4.7%)(▲ 0.4%)0.0%―

Note: Figures in parentheses show the change in invoice currency shares from 2014 to 2020. The asterisk (*)
denotes cases where the partner country currency is the USD or the euro. The minus sign (-) denotes cases where
it is difficult to state the figures as a percentage due to the absence of actual results or because the value is minimal.

10

Next, Table 4 shows the invoice currency shares (for the yen, USD, euro, and partner country currency) for
imports in 2020 by country of origin. Among the top 34 countries of origin in 2020, the USD accounts for thelargest invoice currency share (in value terms) for 17 countries (excluding the U.S.), the yen accounts for thelargest share for 15 countries, and the partner country’s currency accounts for the largest share for two countries.
The USD invoice share is highest for imports from the oil-producing countries of the Middle East: for all
four countries in the list, it is over 95%. Other countries for which the USD invoice share is high are South Africa(77.1%), Brazil (76.3%), and Russia (74.3%), imports from which are mainly resource related. The yen invoice
share is highest for imports from Ireland (77.4%), Sweden (74.8%), and Chile (70.4%), and overall, the yen
invoice share tends to be high for imports from Europe. Apart from the U.S. (71.8%), the country with the highest
country of their currency share is the Netherlands, with 43.8%.
Comparing the shares in 2020 with those in 2014 shows that the currency with the most widespread decline
in use in Japanese imports is the USD, with the share falling for imports from 23 out of the 34 countries. A
decline follows this in using partner country currencies, whose invoice share declined in the imports from 14
countries (excluding the U.S.). Reflecting these declines, the invoice currency share of the yen increased inimports from 24 countries, showing that, as a trend, the USD share has declined, and the yen share has increased.
This is particularly the case of imports from Europe, where the invoicing share of the yen has risen for eight of
the 11 countries. The most significant increases in the yen invoicing share were observed in imports from Italy(+21.0 percentage points), Singapore (+17.3 percentage points), and Switzerland (+15.7 percentage points).
As for exports, differences can be seen between the value-based and transaction-based shares. On atransaction basis, the USD accounts for the largest share of imports from 21 countries, followed by the yen andthe partner country currency, which account for the largest shares of imports from six and seven countries(excluding the U.S.), respectively. This suggests that – unlike in the case of exports – when it comes to imports,
small-value transactions tend to be invoiced in USD, while high-value transactions tend to be invoiced in yen.
Next, the comparison with 2014 indicates that the USD invoice share declined in imports from 20 countries,
which is similar to the result on a value basis, and the yen invoice share increased in the imports from most ofthese countries. The share of invoices in the partner country currency has not increased much, with imports fromThailand (+3.5 percentage points) and China (+3.2 percentage points) seeing the largest increases in partnercurrency shares among emerging market currencies.

11

Table 4: Invoice Currency Shares by Partner Country (Imports, 2020)
Currency Share in Value (2020)
U.S.dollar
ChinaSouth Korea
Hong Kong
TaiwanThailandAsia

Malaysia
Indonesia
Singapore
Philippines
Vietnam
India
Australia

Oceania

New Zealand
U.K.
Switzerland
Germany
Italy
FranceEuropeSpain
Ireland
Belgium
Netherlands
SwedenRussiaU.S.
CanadaNorth &
Latin
America

MexicoBrazilChile
United Arab Emirates
Saudi Arabia

OthersKuwait
Qatar
South Africa

Japanese yen

Currency Share in Number of Transaction (2020)
Partner Country

Euro

Currency

U.S.dollar

Japanese yen

Partner Country

Euro

Currency

72.7%

21.4%

0.5%

5.1%

72.5%

20.6%

0.8%

5.5%

(▲ 1.6%)(▲ 0.7%)(▲ 0.5%)(+2.9%)(▲ 3.6%)(+0.7%)(▲ 0.1%)(+3.2%)

37.4%

58.7%

0.2%

3.5%

29.9%

62.5%

0.4%

7.1%

(▲ 4.3%)(+3.2%)(▲ 0.0%)(+1.1%)(+1.3%)(▲ 1.6%)(+0.1%)(+0.3%)

14.3%

84.0%

0.2%

0.9%

59.7%

29.3%

2.1%

6.3%

(▲ 0.5%)(+1.4%)(▲ 0.5%)(+0.3%)(▲ 3.5%)(+3.1%)(+0.2%)(+0.2%)

73.1%

24.0%

0.2%

2.6%

61.9%

31.3%

0.5%

5.9%

(+2.5%)(▲ 2.5%)(+0.1%)(+0.1%)(+2.9%)(▲ 3.2%)(+0.1%)(+0.2%)

49.8%

35.9%

0.3%

13.8%

47.2%

34.8%

0.6%

17.1%

(▲ 2.9%)(▲ 0.2%)(+0.1%)(+3.0%)(+0.5%)(▲ 4.0%)(▲ 0.2%)(+3.5%)

65.5%

32.2%

0.3%

1.3%

66.4%

28.2%

0.9%

3.3%

(+17.0%)(▲ 18.4%)(+0.2%)(+1.1%)(▲ 2.5%)(+0.5%)(+0.3%)(+1.7%)

62.8%

35.5%

0.1%

1.2%

73.3%

23.2%

0.7%

2.0%

(▲ 11.5%)(+10.8%)(+0.0%)(+0.6%)(+1.3%)(▲ 0.1%)(▲ 0.2%)(▲ 0.3%)

40.0%

56.5%

0.2%

3.2%

61.8%

30.5%

1.0%

6.2%

(▲ 16.0%)(+17.3%)(▲ 0.1%)(▲ 1.1%)(▲ 4.2%)(+5.2%)(▲ 0.0%)(▲ 0.9%)

40.8%

58.4%

0.5%

0.4%

45.3%

53.6%

0.5%

0.6%

(▲ 2.9%)(+3.0%)(+0.2%)(▲ 0.3%)(▲ 1.5%)(+1.6%)(+0.2%)(▲ 0.1%)

66.6%

33.1%

0.2%

0.0%

76.2%

22.8%

0.7%

0.1%

(▲ 13.6%)(+13.6%)(▲ 0.1%)(▲ 0.0%)(▲ 3.5%)(+3.8%)(▲ 0.3%)(+0.0%)

78.5%

18.8%

1.3%

0.9%

72.5%

18.8%

5.6%

1.8%

(▲ 5.2%)
53.7%(+4.4%)
44.4%(+0.1%)
0.0%(+0.5%)
1.8%(+0.1%)(+0.7%)
58.0%(▲ 3.6%)(+0.7%)
22.3%(▲ 1.3%)0.5%(+0.5%)
18.4%

26.8%

59.4%

0.3%

11.8%

28.4%

45.8%

0.7%

23.0%

(▲ 9.3%)(+3.9%)(▲ 0.2%)(+4.5%)(▲ 5.4%)(▲ 4.0%)(▲ 0.2%)(+8.8%)(▲ 0.9%)(+0.8%)(+0.0%)(+3.7%)(+0.2%)(▲ 0.2%)

32.1%

40.1%

7.1%

20.4%

21.7%

29.5%

8.6%

39.2%

(+3.8%)(+6.1%)(▲ 1.5%)(▲ 7.6%)(+1.3%)(+2.2%)(▲ 0.2%)(▲ 3.3%)

6.7%

61.4%

3.4%

27.5%

11.0%

44.6%

10.5%

31.3%

(▲ 2.3%)(+15.7%)(+0.3%)(▲ 14.1%)(+0.9%)(+4.5%)(+0.7%)(▲ 7.1%)

9.5%

53.8%

33.1%

(+3.3%)(+1.2%)(▲ 5.9%)

6.4%

63.5%

27.6%

(▲ 1.6%)(+21.0%)(▲ 19.9%)

15.0%

53.1%

27.9%

(+4.1%)(+2.5%)(▲ 9.3%)

7.7%

58.6%

31.3%

(▲ 12.4%)(+7.3%)(+3.2%)

18.1%

77.4%

4.4%

(+5.5%)(▲ 1.3%)(▲ 4.0%)

9.7%

49.6%

17.5%

(▲ 9.1%)(▲ 5.6%)(▲ 7.1%)

11.4%

37.9%

43.8%

(+3.2%)(▲ 27.4%)(+18.3%)

7.0%

74.8%

13.2%

(▲ 1.2%)74.3%(▲ 4.9%)71.8%(▲ 3.7%)(+9.3%)
24.3%(+4.0%)
27.4%(+4.2%)(▲ 4.5%)0.9%(+0.6%)
0.4%(▲ 0.4%)

51.3%

44.9%

0.2%

(▲ 10.4%)(+11.0%)(▲ 0.1%)

*
*
*
*
*
*

9.5%

36.1%

53.1%

(+1.2%)(+2.0%)(▲ 3.1%)

4.8%

44.5%

49.7%

(▲ 0.2%)(+10.2%)(▲ 9.9%)

10.3%

41.6%

46.6%

(▲ 0.5%)(+2.1%)(▲ 1.5%)

7.9%

37.9%

52.9%

(+0.8%)(+3.2%)(▲ 4.0%)

28.8%

58.6%

12.0%

(+9.8%)(▲ 7.1%)(▲ 2.6%)

14.0%

31.3%

53.7%

(▲ 0.2%)(+4.2%)(▲ 3.3%)

*
*
*
*
*
*

12.3%

28.7%

58.0%

(+1.8%)(▲ 12.2%)(+10.8%)

4.2%

10.9%

54.9%

22.5%

11.1%

▲ 3.9%
0.4%(+0.4%)(+0.3%)
61.0%(+1.8%)
80.9%(▲ 2.4%)(+1.7%)
24.8%(▲ 6.7%)17.8%(+2.2%)(+2.5%)
12.2%(+4.7%)
0.8%(+0.2%)▲ 4.1%
1.1%(+0.4%)

3.3%

66.0%

22.8%

0.9%

9.4%

(▲ 0.4%)(▲ 0.8%)(+3.0%)(+0.3%)(▲ 2.7%)

*

*

*

*

57.9%

41.0%

0.4%

0.1%

66.4%

31.2%

1.2%

0.3%

(▲ 7.8%)(+8.1%)(▲ 0.3%)(▲ 0.0%)(▲ 4.3%)(+4.4%)(+0.2%)(+0.2%)

76.3%

23.5%

0.1%

0.0%

80.5%

16.7%

1.8%

0.6%

(+3.5%)(▲ 3.1%)(▲ 0.3%)(+0.0%)(▲ 8.2%)(+8.5%)(▲ 0.1%)(+0.2%)

29.3%

70.4%

(▲ 5.2%)(+5.1%)

96.7%

3.3%

(+14.8%)(▲ 14.8%)

97.0%

3.0%

(▲ 1.3%)(+1.3%)

96.2%

3.8%

(▲ 3.4%)(+3.4%)

0.1%
―

0.0%
―

0.0%
―

0.0%
―

0.0%
―

0.0%
―

0.0%
―

0.0%
―

68.7%

29.0%

1.2%

(▲ 8.2%)(+7.7%)(▲ 0.1%)

0.0%
―

86.7%

9.0%

1.9%

1.6%

(+4.0%)(▲ 4.5%)(+0.8%)(▲ 0.1%)

80.9%

18.5%

0.3%

0.3%

(▲ 0.0%)(+0.9%)(+0.0%)(▲ 0.8%)

87.5%

10.1%

(▲ 0.7%)(▲ 0.3%)

0.0%
―

2.2%
(+1.1%)

98.2%

1.8%

0.0%

0.0%

93.1%

5.6%

1.1%

0.1%

(+0.7%)(▲ 0.7%)(+0.0%)(▲ 0.0%)(▲ 1.4%)(+1.1%)(+0.9%)(▲ 0.4%)

77.1%

21.7%

0.8%

0.2%

56.0%

30.1%

8.8%

2.6%

(+5.2%)(+0.7%)(▲ 5.9%)(+0.1%)(▲ 1.5%)(+1.1%)(▲ 1.1%)(+0.3%)

Note: Figures in parentheses show the change in invoice currency shares from 2014 to 2020. The asterisk (*)
denotes cases where the partner country currency is the USD or the euro. The minus sign (-) denotes cases where
it is difficult to state the figures as a percentage due to the absence of actual results or because the value is minimal.

12

As we showed, this study provides an overview of the choice of invoice currency in Japan’s exports andimports to and from the top 34 partner countries. The overall trend is toward a declining share of the USD inexports and imports. Moreover, this trend was found to be more pronounced for exports. Further, not only were
there differences in invoice currency shares between imports and exports, but they also differed by region. The
following summarizes the patterns in invoice currency shares by region, first for exports and then for imports. 4
Exports to Asia•

In terms of the invoice currency shares in Japan’s exports, Asian countries can be divided into threegroups. The first group comprises China, Indonesia, Singapore, the Philippines, Vietnam, and India, forwhich the USD is the dominant invoice currency. The second group has only one country, South Korea,
for which the yen is the dominant invoice currency. The third group comprises Hong Kong, Taiwan,
Thailand, and Malaysia, for which the USD and the yen are on par. Why these differences are observed,
even though these countries all fall into the same region and are among Japan’s major trading partners,
is something that requires further analysis, focusing, for example, on differences in major commodities
and price competitiveness in exports to these countries.

•

In recent years, the share of Japanese exports invoiced in USD has decreased, while the share invoiced
in yen and the destination country’s currency has increased. This is especially the case in exports to Asia.
In terms of invoicing in destination country currencies, the use of the Chinese yuan, the Thai baht, andthe Indian rupee has seen particularly notable increases. On the other hand, USD invoicing has increased
exports to Taiwan and Vietnam, which have seen a rise in Japanese exports in recent years. In contrast,
the invoicing share of the USD overall has remained unchanged when aggregating data for Asia as awhole. Thus, a key finding is that the data used in this study made it possible to identify country-specificcharacteristics that cannot be observed from the data compiled for the Asian region.

•

Another finding is that in Japan’s exports to Asia, there are notable differences in invoice currency shareson a value basis and a transactions basis. For the yen, the share tends to be more prominent on atransaction basis than on a value basis, while for the USD, the opposite is the case. This suggests thatlarger transactions, such as intra-firm trade, tend to be invoiced in USD, while relatively smalltransactions are invoiced in yen. This is another new finding of this study.

Exports to Oceania•

Since Australia and New Zealand are developed countries, there is a strong tendency for exports to bothcountries to be mainly invoiced in the partner country’s currency or yen. When the partner country’s
currency is a hard currency, as in the case of these two countries, the USD is ranked third.

Exports to Europe•

For exports to countries that have adopted the euro, the euro accounts for most countries' largest shareon a value basis, followed by the yen. However, on a transaction number basis, the yen share is higher
and almost on par with the share of exports invoiced in euros. This indicates that the pattern of the yen
being used for relatively small transactions and the euro being used for larger amounts is also evident
in exports to Europe.

•

In exports to countries that have not adopted the euro, such as the U.K. and Switzerland, the share of

4 Note that for some countries there were large changes in invoice currency shares in a short period of time. Since there were no

major changes in the number of transactions for these countries, these large changes in invoice currency shares likely reflect either
fluctuations in the volume of trade in a particular good or a switch in the invoice currency. When explaining large changes in invoicecurrency shares, it is important to distinguish whether such changes were caused by changes in the value (volume) of exports ofgoods that are traditionally invoiced in USD, yen, or the partner country’s currency, or whether they were caused by a switch in theinvoice currency – for example, if goods that were traditionally invoiced in USD started to be invoiced in yen. This is an issue wehope to examine in detail in the future.

13the USD tends to be higher than in exports to other European countries.
•

Exports to Eastern European countries and Turkey are predominantly invoiced in euros. This pattern
has intensified in recent years in exports to Turkey.

•

In exports to Russia, the Russian ruble accounts for the largest share on a value basis, remaining above
30% throughout the entire period. However, on a transaction number basis, the ruble invoice share isabout 20 percentage points lower than on a value basis. On a transaction number basis, the yen accounts
for the largest share, suggesting that the ruble is used as the invoice currency for large exporttransactions. In contrast, the yen is used for relatively small export transactions.

Exports to North America and Central and South America•

In exports to the U.S. and Mexico, the USD accounts for the largest share on a value and a transaction
basis, while in exports to Canada, the USD and the Canadian dollar are on par on a value basis.
Moreover, in exports to the U.S., there has been no notable change in this pattern. However, in exports
to Canada and Mexico, recent years have seen a shift from the USD to the destination country currencies– i.e., the Canadian dollar and the Mexican peso. Meanwhile, in exports to Brazil, the invoice share of
the USD has also been declining, while the shares of the yen and the Brazilian real have been increasing.

Exports to other regions•

The yen tends to account for the largest invoice share in exports to the oil-producing countries of the
Middle East. Our previous studies, which indicate that the yen invoice is usually selected only whenexporting competitive or differentiated goods, suggest that Japanese firms use the yen to invoice thedifferentiated goods they export to Middle Eastern countries.

•

In exports to South Africa, the euro and the yen are widely used as invoice currency.

Next, we summarize the pattern of invoice currency shares for imports by region. Since imports from the
U.S. and resource-rich countries, which are among Japan’s top trading partners, are denominated mainly in USD,
the invoice share of the USD in Japan’s imports is high, and there has been little change in this pattern.
Imports from Asia•

Regarding Japanese imports from Asia, the number of countries for which the USD makes up the largest
invoice share in Japanese imports is larger than the corresponding number for exports. Specifically,
while the yen accounts for the largest invoice share in imports from Hong Kong, South Korea,
Singapore, and the Philippines, the USD makes up the largest share in imports from all other countries.
Among these, the USD invoice share has increased in recent years in imports from Taiwan and Malaysia,
while the yen invoice share in imports from these countries has tended to decline. A possible explanation
for this trend is the large volume of imported goods commonly invoiced in USD, such as electronic andelectrical parts and components.

•

Asian countries for which the USD invoice share in Japan’s imports has been declining and the yen
invoice share has been rising are South Korea, Indonesia, Singapore, the Philippines, Vietnam, andIndia.

•

Comparing shares on a value basis and a transaction number basis shows that in imports from many
countries, the yen invoice share is higher on a value basis than on a transaction basis. This patterncontrasts with exports and is also observed for imports from many non-Asian countries.

Imports from Oceania•

Unlike exports to Oceania, in the case of imports, USD invoicing is used more than invoicing in thepartner country's currency. This is likely due to the high share of primary commodities in imports fromthe region. While there has been no change in the invoice currency pattern in imports from Australia,
14

in imports from New Zealand, there has been a slight downward trend in USD invoicing and an upward
trend in New Zealand dollar invoicing.
Imports from Europe•

In trade with Europe, the share of imports invoiced in yen has increased, except for imports from France,
Ireland, Belgium, and the Netherlands. In trade with the U.K. and Switzerland, the USD shares inimports and exports have decreased, while the yen and partner currency shares have increased markedly.
We conjecture that the yen invoice share in imports from European countries is higher than in imports
from other regions, which indicates that European firms have adopted a PTM strategy for their Japanesecustomers. However, the pattern varies from country to country, and further analysis is needed.

•

On a value basis, most imports from Europe are invoiced in yen; on a transaction number basis, themajority are invoiced in euros. Further analysis is needed to examine how this relates to the PTM
strategies of European firms.

•

In imports from Russia, USD invoicing accounts for a large share. This likely mainly reflects that mostimports from Russia consist of natural resources.

Imports from North America and Central and South America•

In imports from the U.S., the share of USD invoicing has been decreasing, while the share of yen
invoicing has been increasing, although these changes have been relatively small. The reason for thesetrends and whether they are likely to continue will require particular analysis, mainly since the U.S. isJapan’s second-largest import partner.

•

Imports from Canada and Mexico have seen a marked decrease in the USD share and an increase in the
yen share since 2019. This period coincides with the tentative agreement of the U.S.-Mexico-Canada
Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA).

Imports from other regions•

In imports from the Middle East, which primarily consist of resource imports, the USD invoice shareremains close to 100%. Similarly, imports from South Africa remain predominantly invoiced in USD,
and the USD share has increased. This strong preference for USD invoicing in resource imports is
responsible for USD invoicing continuing to dominate Japan’s imports.

Previously published data on trade invoice currency shares by region showed no substantial changes in thehigh share of the USD in Japanese firms’ choice of invoice currency. Moreover, many respondents indicated thatthey do not change their invoice currency much in the firm surveys conducted by Ito et al. (2010, 2011, 2015,2016, 2017, 2019). However, the country-level analysis in this study using customs data showed that during theobservation period from 2014 to 2020, a certain degree of change in the invoice currency shares was observedin the imports from and exports to individual countries. There are various possible reasons for this. For example,
we conjecture that the trend of a decline in USD invoicing and a rise in partner currency invoicing in trade with
Asian countries suggests that in the intra-firm trade as part of the supply chains developed in Asia, firms are
beginning to adopt strategies to mitigate foreign exchange risks for their local subsidiaries by using their local
currencies. Moreover, in transactions with Europe, especially on the import side, yen invoicing is rising,suggesting that European firms are increasingly pursuing a PTM strategy toward Japan. On the other hand, forsome countries, such as the U.S. and Germany, there has not been much change in invoice currency shares.

5.

Empirical Analysis: Determinants of Invoice Currency Choice in Japan
Various empirical investigations of the determinants of invoice currency choice have been conducted inprevious studies. Typical examples are Goldberg and Tille (2008), which uses 24 sample countries and provides
15evidence that the export share to the U.S. matters, and transaction costs play a minor role. Kamps (2006) uses 42
countries and confirms that a country's membership or prospective membership in the EU plays a decisive rolein choosing the euro as an invoicing currency in its trade. As for a country analysis, Friberg and Wilander (2008)
performs an econometric analysis on currency invoicing in Swedish exports based on questionnaire survey andconfirms that firms who sell differentiated products are more likely to use kronor as their main currency forexports.
Those conducted using customs data from undisclosed countries include the following. Goldberg and Tille(2016), who use Canadian import transactions, conclude that the invoicing choice results from a bargaining
process between trading partners. Chung (2016), who uses U.K. export customs data, shows that U.K. exporters
relying on foreign currency-denominated imported inputs are less likely to invoice in their home currency. Chen,
Chung, and Novy (2022) used U.K. import customs data and showed that Vehicle Currency Pricing (VCP) ispervasive for U.K. imports, with more than half of the transactions in their sample invoiced in neither sterling
nor the exporter’s currency.
An empirical study of invoice currency for Japanese firms is presented by Ito et al. (2010, 2013, 2016).
Interviews and questionnaire surveys confirm that the USD invoiced share is substantial in Japanese exports,
which contrasts markedly with advanced countries’ exports where exporters’ currency is typically chosen forexport invoicing. This is mainly due to the behaviour of large firms in unifying their transactions in their supply
chains in USD from the perspective of exchange rate risk management. Ito et al.'s analysis (2010, 2016) has been
based on firm-level data, but the number of sample firms was small. The data used in this empirical analysis isinvoice currency share data, constructed by aggregating customs data by country, including all trade transactionsin Japan. As indicated in the previous section, the invoice currency share of Japan's trades varies between theyen (PCP), the USD (VCP), and the partner countries’ currency (LCP) widely from country to country and evenfrom year to year. Although all are trade transactions with Japan, they can be regarded as representing the invoicecurrency choice of trading partner countries. Analyzing the factors and using explanatory variables that show thecharacteristics of each country would be an exciting study for predicting future trends of invoice currencies inworld trade.

5-1.

Model and Explanatory Variables
In this section, we empirically investigate the determinants of currency shares for Japan’s export and importinvoicing using the cross-partner country time-series data discussed in the previous section. This analysis allows
us to investigate the conditions of Japan and its partner economies and trade characteristics that would affect the
choice of a currency for Japan’s trade invoicing. We conduct panel data analysis with 34 countries from 2014
through 2020. In this analysis, we investigate the yen invoicing (PCP), the USD invoicing (VCP), and the partnercountries’ currency invoicing (LCP).
Our specification on the share of invoice currency for export or import invoicing is as follows:
𝑐𝑐
𝑐𝑐
𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖,𝑡𝑡= 𝛼𝛼0𝑐𝑐 + 𝛼𝛼1𝑐𝑐 ∙ 𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝛼𝛼2𝑐𝑐 ∙ 𝐸𝐸𝐸𝐸𝑖𝑖,𝑡𝑡 + 𝛼𝛼3𝑐𝑐 ∙ 𝑃𝑃𝑃𝑃𝑖𝑖,𝑡𝑡 + 𝛼𝛼4𝑐𝑐 ∙ 𝐹𝐹𝐹𝐹𝑖𝑖,𝑡𝑡 + 𝜀𝜀𝑖𝑖,𝑡𝑡(1)

𝑐𝑐
where 𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖,𝑡𝑡
is the invoice currency share of major currency C (either one of the yen, the USD, or the partnercountry’s local currency) used for invoicing exports to or imports from country i in year t. Vector
𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 represents the fundamental macroeconomic factors of country i, including country i’s real GDP, country i’s

inflation differentials vis-à-vis Japan, country i’s per capita income level relative to the U.S., and the total valueof country i’s export to, or import from Japan.
Vector 𝐸𝐸𝐸𝐸𝑖𝑖,𝑡𝑡 represents the exchange rate and system factors country i, including country i’s currency’s

nominal exchange rate vis-à-vis the yen, nominal exchange rate volatility (standard deviation of nominal
16

exchange rate in previous two years), transaction cost calculated by currency i’s bid-ask spread of the exchange
rate vis-à-vis the yen from Bloomberg quotation, and the USD coefficient of Frankel and Wei (1994) model,
which indicates the country’s exchange rate system.
Vector 𝑃𝑃𝑃𝑃𝑖𝑖,𝑡𝑡 represents the production network factors of country i with Japan, including country i’s shareof intermediate goods in exports from Japan and country i’s number of Japanese subsidiaries, and country i’sshare of imports from Japan in the country i’s imports. In the analysis of import invoicing, we use additional
factors to indicate the types of goods by processing stage, the share of primary goods, intermediate goods, andfinal goods in import to Japan based on the RIETI TID2020 database. 5 Vector 𝐹𝐹𝐹𝐹𝑖𝑖,𝑡𝑡 represents the degree ofcountry i’s financial market development including the degree of country i’s financial openness (The Chinn-Itoindex) and ratio of total foreign assets and liabilities to nominal GDP followed by Lane and Milesi-Ferretti (2003).
In all sample countries, the panel is unbalanced because, in some cases, not all of the above data were available.6
We chose a fixed effect model that included the year and country fixed effects.
Based on the previous literature on trade invoicing, we decided on the above explanatory variables for
fundamental economic factors. Before discussing the empirical analysis's results, we will explain the meanings
and expected coefficients of these explanatory variables.
The first determinant, suggested by many previous studies like Bacchetta and van Wincoop (2005), is therelative size of the exporting and importing countries. Firms in any country have some preference for invoicing
in their currency to reduce their exchange rate risks. Such a “coalescing effect” (Goldberg and Tille, 2008) can
positively affect a country’s real GDP and local currency invoicing with Japan. In addition, which country bears
the currency risk depends on the strength of the bargaining power between the two countries. Let us consider
that trade with countries with relatively sizeable real GDP means that the power of those customers is vital. We
expect a negative sign for the yen invoicing and a positive sign for the local currency invoicing. As the“coalescing effects” in Goldberg and Tille (2008), we add the indicator of relative income, which is a country's
per capita income relative to that of the U.S. as a proxy for the economy's capacity to produce differentiatedgoods follows by Ito and Kawai (2016). Firms of highly differentiated goods may have bargaining power in themarket, so we expect a positive for yen or local currency invoicing and a negative for USD invoicing.
Inflation differentials used to be included in many previous studies, which suggested that firms do not tend
to use the currency with high inflation. It worked well when analyzing the European economy with high inflation
rates, which tended to use the DM rather than other European currencies, such as the Italian lira and the Spanish
peseta in the 1980s. This analysis covers trade with Japan, and since Japan's inflation rate is relatively low relative
to other neighboring countries for the sample period, it will be interesting to see how this impacts trade invoicing
with Japan. If Japan's trading partners are unwilling to reserve or accept the yen as a trade invoicing currency
because holding yen does not provide any interest income, they prefer to use the USD, vehicle currency invoicing
rather than the yen. Accordingly, we expect a negative effect on yen invoicing.
We use the nominal exchange rate (in logarithm) and its volatilities regarding the exchange rate-related
factors. Japan's trading partners include many Asian countries. The currencies of these countries are not yet
internationalized, and their exchange rates tend to be volatile, especially against the yen, which is one reason forthe preference for the USD in trade with Asian countries. If the volatility is high, it is likely to negatively impact
the yen invoicing and positively affect the USD invoicing. Recently, Asian currencies have been holding firm
against the yen on the back of high growth potential, and it will be interesting to see how such changes in nominal
exchange rates affect these currencies. In addition, we use the USD coefficient of the Frankel and Wei (1994)
model, which indicates the country’s exchange rate arrangement. As explained previously, some Asian countries
5 https://www.rieti.go.jp/jp/projects/rieti-tid/
6 The information of all variables’ descriptive statistics is in Appendix 1.

17

have policies to stabilize the USD, so dollar invoicing is preferred in those countries.
Previous studies have shown that production network-related explanatory variables are essential in Japanesetrade invoicing. According to Ito et al. (2010, 2013, 2016, 2018, 2021), Japanese firms' choice of invoice currency
depends primarily on whether the trade is intra-firm, and they tend not to use the yen to avoid imposing exchange
rate risk on their overseas subsidiaries. In this analysis, we use the intermediate goods trade share as a proxyvariable for the share of intra-firm trade, predicting that a higher share has a more negative impact on yen
invoicing. The number of foreign subsidiaries per country is similarly used as a proxy variable for the share of
intra-firm trade. For imports, while most imports of primary commodities such as crude oil are denominated in
USD, we also add explanatory variables related to the nature of imported goods, given the recent tendency to use
yen invoicing for final goods imports, especially from European and Asian countries.

5-2.

Export Results
We run a regression equation (1) for the yen, the USD, and the partner’s country currency share on a value
basis. We do the same regression for the robustness check using the dataset with share on a transaction number
basis, and the dataset without U.S. transactions (Appendix 2 and 3).
Table 5 reports the results for estimating invoice currency share of the yen based on export value. First, we
confirm that the inflation differentials negatively affect the yen share for export invoicing. How can we interpretthe result that the inflation rate differential has a negative impact on yen invoicing? For example, when exports
are invoiced in yen, importers in the counterpart firms must hold yen as a reserve for payment, but since the yeninterest rate is near zero, there is virtually no return to be gained by holding yen. Thus, the implication is that theimporters from Japan do not want to be paid in yen. As expected, the intermediate goods share in exports fromJapan to the country is found to have a negative impact on the yen invoicing. In the results using the dataset withshare on a transaction number basis, we confirm that the volatilities of the nominal exchange rate negatively
affect the yen share for export invoicing (Appendix 2).

18

Table 5: Determinants of the Japanese Yen Invoicing in Export (2014–2020)

VARIABLES
lnExchange Rate

JPY
JPY
JPY
JPY
JPY
JPY
JPY
JPY
JPY
Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect-0.0535(0.1390)

Exchange Rate
Volatility
F.W.Coefficient-0.0722(0.1250)-0.139(0.1460)

0.0248(0.0744)0.0243(0.0194)-0.0065**(0.0030)

Inflation
Differential
lnGDP

0.0294(0.0942)0.0241(0.0193)-0.0065**(0.0029)-0.0084(0.0660)

lnTotal Export

0.0263(0.0751)

0.0212(0.0178)-0.0069**(0.0033)

0.0197(0.0950)

0.0456(0.0888)0.0143(0.0188)-0.0065**(0.0028)0.0013(0.0747)

0.0117(0.0183)-0.0060**(0.0027)-0.0470(0.0716)-0.1522*(0.0748)-0.1472**(0.0666)-0.0760(0.0506)-0.2320(0.1650)
0.0215(0.0204)-0.0066*(0.0035)-0.0162(0.0543)-0.1870(0.1930)0.0205(0.0207)-0.0060*(0.0035)-0.0346(0.0530)-0.1602**(0.0689)-0.0575(0.0479)0.1860(0.1260)-0.1570**(0.0684)

0.0330(0.0692)

Share of IntermediateGoods
lnFinancial Openness
FX spread
Relative Income

0.4912(0.3551)0.5474*(0.3160)

0.2682(0.1943)0.3145(0.3271)-0.6481(1.8668)

0.369(0.3481)0.9851**(0.4730)

0.8082*(0.4432)

0.0006(0.0010)-0.5190(0.5190)0.6830**(0.3290)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Import Share
Constant
Import Country Fixed
EffectYear Fixed Effect

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

231

231

224

224

224

217

217

217

203

Number of countries

33

33

32

32

32

31

31

31

29

Within R-squared

0.01880.02120.10100.10100.11400.13600.15400.20800.2280Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Table 6 reports the results for estimating the local currency's invoice currency share based on export value.
We confirm that the Frankel and Wei coefficient (hereafter, F.W. coefficient) has a negative impact on the local
currency invoicing as expected. Although we have no other significant results in the share based on trade value,
we have more significant results using the dataset with share on a transaction number basis (Appendix 2). The
local currency share is negatively affected by the inflation differentials, and these results are identical to thosefor the yen share. In addition, the volatility of their nominal exchange rate vis-à-vis the Japanese yen also has anegative impact on the local currency share. Interestingly, the relative income positively impacts the local
currency invoicing, which suggests that Japanese firms export to countries with relatively high GDP per capita
using the country's currency.

19

Table 6: Determinants of the Local Currency Invoicing in Export (2014–2020)

VARIABLES
lnExchange Rate

Local
Local
Local
Local
Local
Local
Local
Local
Local
Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect-0.0016(0.0194)

Exchange Rate
Volatility
F.W.Coefficient

0.0132(0.0253)
0.111(0.0956)

0.0276(0.0239)-0.0536**(0.0227)0.0005(0.0021)

Inflation
Differential
lnGDP

0.0130(0.0291)-0.0532**(0.0220)0.0005(0.0022)0.0270(0.0545)

lnTotal Export

0.0263(0.0236)-0.0512**(0.0229)0.0008(0.0019)0.0112(0.0285)0.0126(0.0297)-0.0457**(0.0218)0.0009(0.0020)0.0080(0.0517)-0.0459**(0.0221)0.0009(0.0020)0.0054(0.0490)-0.0599(0.0643)-0.0597(0.0643)-0.0041(0.0454)0.0959(0.1180)-0.0441*(0.0226)0.00045(0.0019)0.0242(0.0446)

0.0939(0.1200)-0.0507**(0.0219)0.00169(0.0019)0.0157(0.0467)-0.0691(0.0640)-0.0014(0.0436)-0.0261(0.0249)-0.1220(0.0808)-0.0240(0.0196)

Share ofIntermediate Goods
lnFinancial
Openness
FX spread
Relative Income

0.2240***(0.0499)

0.1791**(0.0677)0.1862***(0.0565)0.0401(0.3203)0.8533(0.5640)0.2070(0.2880)0.2404(0.3601)0.2542(0.3550)0.0011(0.0011)-0.5230(0.4700)
0.6130(0.3622)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

230

230

223

223

223

216

216

216

203

Number of countries

33

33

32

32

32

31

31

31

29

Within R-squared

0.0316

0.0346

0.07150.07330.08150.10200.10200.10300.1600

Import Share
Constant
Import Country Fixed
EffectYear Fixed Effect

Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Table 7 reports the results for estimating USD invoice currency share based on export value. At first, theyen’s depreciation increases the USD invoicing. In addition, the Japanese exporter chooses USD invoicing if theF.W. coefficient is higher, i.e., if the exporting partner has an exchange rate policy linked to the dollar. Although
we have no significant results about the inflation differentials in the share based on trade value, we havesignificant results using the dataset with share on a transaction number basis (Appendix 2). Contrary to the yen
and the local currency invoicing, the inflation differentials positively affect the USD share. During this analysis's
sample period, Japan's inflation was generally low relative to other countries. Countries with large inflation rate
disparities with Japan are often emerging rather than advanced countries. The results suggest that exporters to
emerging markets with high inflation rates choose the USD, vehicle currency invoicing. Contrary to the yen case,a higher intermediate goods trade share results in more dollar-invoiced exports. This result is consistent with ourprevious research showing that intra-firm trade with foreign subsidiaries tends to unify all their trade transactions
with the USD. Interestingly, the relative income has a negative impact on the USD invoicing, which suggeststhat Japanese firms export to countries with relatively high GDP per capita using their local currency invoicing,
not the USD, a vehicle currency invoicing. 7

7 We confirm this result with data excluding trade to the U.S.

20

Table 7: Determinants of the USD Invoicing in Export (2014–2020)

VARIABLES
lnExchange Rate

USD
USD
USD
USD
USD
USD
USD
USD
USD
Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect0.1500*(0.0785)

Exchange Rate
Volatility
F.W.Coefficient

0.1431*(0.0757)-0.0519(0.1660)

0.0726*(0.0407)0.0244(0.0211)0.0040(0.0029)

Inflation
Differential
lnGDP

0.1120*(0.0643)0.0232(0.0212)0.0042(0.0030)-0.0729(0.0771)

lnTotal Export

0.0717*(0.0401)

0.0263(0.0201)
0.0042(0.0033)

0.1253*(0.0635)

0.1131*(0.0586)

0.0274(0.0214)0.0038(0.0028)-0.0648(0.0679)

0.0286(0.0207)0.0035(0.0028)-0.0418(0.0652)0.2241**(0.0978)

0.2212**(0.0947)
0.0363(0.0555)-0.1070(0.1380)
0.0387*(0.0213)0.0038(0.0033)
0.0145(0.0512)-0.0706(0.1920)0.0460**(0.0190)0.0014(0.0030)
0.0740(0.0555)

0.1821**(0.0761)
0.0462(0.0523)-0.1740(0.1340)0.1992**(0.0910)-0.0208(0.0721)

Share of IntermediateGoods
lnFinancial Openness
FX spread
Relative Income-0.0139(0.2020)0.0069(0.1950)0.1600(0.1022)0.5550(0.4214)0.7390(1.9721)0.3410(0.3573)

0.0468(0.4762)0.1630(0.4670)-0.0026*(0.0014)0.6350(0.5720)-0.3510(0.4144)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

231

231

224

224

224

217

217

217

203

Number of countries

33

33

32

32

32

31

31

31

29

Within R-squared

0.11800.11800.07000.07770.07450.13000.13400.17100.2390

Import Share
Constant
Import Country Fixed
EffectYear Fixed Effect

Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

The almost same analysis was performed with the share of the number of transactions as the explained
variable and with data excluding trade to the U.S. from the sample, with almost the same results. A table of theseresults is presented in the Appendix 2 and 3.

5-3.

Import Results
Next, we show the results for import. Table 8 reports the results for estimating invoice currency share of theyen based on value in import. Contrary to the results in exports, the inflation differentials positively affect the
yen share for import invoicing. The most interesting result is that the export share of the final goods is positivein yen invoicing. Just as Japanese firms choose the partner currency for important export destinations and adopt
a PTM strategy, we confirm that foreign firms exporting to Japan adopt a PTM strategy when exporting to Japanbecause they consider Japan to be an essential market for their final goods exports.

21

Table 8: Determinants of the Japanese Yen Invoicing in Import (2014–2020)
JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect

JPY
Fixed Effect0.0133(0.0339)0.0252(0.0285)0.1680(0.1030)

0.00660(0.0319)0.0326(0.0284)0.0904(0.1030)

0.0215(0.0265)
0.1220(0.1000)

0.0219(0.0273)
0.1391(0.1050)0.0293(0.0277)0.0743(0.0991)0.0202(0.0274)
0.1612(0.1090)0.0228(0.0286)0.1800(0.1080)0.0228(0.0277)0.1353(0.1080)0.0017*(0.0009)-0.0423(0.0354)0.0010(0.0011)0.0013(0.0010)0.0013(0.0010)0.0012(0.0010)0.0011(0.0009)

0.0013(0.0009)

lnTotal Import

0.0144(0.0154)0.0090(0.0142)0.0193(0.0161)0.0092(0.0141)0.0117(0.0135)

0.0092(0.0141)

lnFinancial
Openness0.0296(0.0236)-0.0085(0.0188)-0.0099(0.0209)-0.0515(0.0319)-0.0108(0.0192)-0.0205(0.0174)-0.0090(0.0182)

VARIABLES
lnExchange Rate
Exchange Rate
Volatility
F.W.Coefficient

0.0114(0.0166)

Inflation
Differential
lnGDP

FX spread
Relative Income
Share of IntermediateGoods-0.0355(0.0321)0.1230**(0.0543)

Share of Final Goods
Share of Primary
Goods
Constant
Export Country Fixed
EffectYear Fixed Effect0.2691***(0.0717)0.2352***(0.0603)

0.2760***(0.0682)

0.5080**(0.2400)-0.3010(0.5110)-0.0062(0.4160)-0.1030(0.4330)

0.0053(0.4160)-0.1290(0.3980)-0.0163(0.0246)-0.0116(0.4150)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

238

238

238

238

238

238

238

238

238

238

Number of countries

34

34

34

34

34

34

34

34

34

34

0.0756

0.06150.10800.10400.09070.13900.10800.17300.0936

Within R-squared
0.0555
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Table 9 reports the results for estimating the local currency's invoice currency share based on import value.
We find that the volatility in the exchange rate against the yen positively impacts local currency invoicing. Thismeans that import partners prefer to be paid in their currency rather than in the yen or the USD when the exchange
rate against the yen is highly volatile. The total import value negatively affects local currency invoicing. Thisimplies that the large value of Japan's imports means that Japan is an important export partner and does not use
its currency to impose foreign exchange risk on Japanese firms. It was also confirmed that the higher thetransaction cost of the exchange, the less the local currency is used. The result is that the higher the relative
income, the more imports are invoiced in the country's currency. This is consistent with previous studies findingsthat the producing country's currency tends to be chosen when the imported material is a competitive good.

22

Table 9: Determinants of the Local Currency Invoicing in Import (2014–2020)
Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect

Local
Fixed Effect-0.0122(0.0136)-0.0131(0.0151)-0.0125(0.0420)-0.00518(0.0162)-0.0206(0.0172)
0.0497(0.0458)-0.00945(0.0143)0.0322(0.0423)-0.0114(0.0131)0.0341(0.0458)-0.0197(0.0139)0.1110**(0.0531)-0.0110(0.0130)
0.0287(0.0501)-0.0117(0.0129)0.0240(0.0523)-0.0117(0.0132)
0.0353(0.0461)-0.0011(0.0007)
0.0384(0.0228)-0.0002(0.0008)-0.0004(0.0007)-0.0004(0.0006)-0.0004(0.0007)-0.0003(0.0007)-0.0004(0.0007)

lnTotal Import-0.0243**(0.0109)-0.0173*(0.0091)-0.0270**(0.0112)-0.0174*(0.0091)-0.0180*(0.0093)-0.0174*(0.0091)

lnFinancial
Openness-0.0337*(0.0177)-0.0397*(0.0197)-0.0400**(0.0171)
0.0489**(0.0196)-0.0392*(0.0197)-0.0368*(0.0196)-0.0396*(0.0196)

VARIABLES
lnExchange Rate
Exchange Rate
Volatility
F.W.Coefficient-0.0120(0.0109)

Inflation
Differential
lnGDP

FX spread
Relative Income
Share of IntermediateGoods

0.0088(0.0174)-0.0306(0.0488)

Share of Final Goods
Share of Primary
Goods
Constant
Export Country Fixed
EffectYear Fixed Effect

0.2080***(0.0300)

0.2111***(0.0342)0.2021***(0.0324)-0.0355(0.1350)

1.0432***(0.3740)0.6912**(0.2580)

0.7911***(0.2740)0.6880**(0.2570)0.7223**(0.2690)0.0041(0.0091)0.6920**(0.2590)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

238

238

238

238

238

238

238

238

238

238

Number of countries

34

34

34

34

34

34

34

34

34

34

0.0237

0.03690.06810.10600.09000.14700.09210.10000.0903

Within R-squared
0.0235
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

Table 10 reports the results for estimating USD invoice currency share based on import value. We confirm
that the volatility in the exchange rate against the yen has a negative impact on USD invoicing. While previous
studies indicated a preference for the vehicle currency invoicing, the USD, rather than the yen, when exchange
rate volatility is high, this study shows a preference for the local currency rather than the USD. This result is also
the same as the data without U.S. trade. However, the results also confirm that the higher the transaction cost ofa currency, the more the USD is used as an invoicing currency in imports. This suggests Japanese firms are moreconcerned with currency transaction costs than exchange rate volatility when importing. Finally, the final goods
export share is negative in the USD invoicing, consistent with the results in the yen invoicing.
Similar to the case of exports, the almost same analysis was performed with the share of the number oftransactions as the explained variable and with data excluding trade to the U.S. from the sample, with almost thesame results. A table of these results is presented in the Appendix 4 and 5.

23

Table 10: Determinants of the USD Invoicing in Import (2014–2020)
USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect

USD
Fixed Effect-0.0014(0.0284)-0.0097(0.0242)-0.1160(0.1070)-0.0071(0.0281)-0.0150(0.0265)-0.0740(0.1080)-0.0099(0.0251)-0.1171(0.1030)-0.0085(0.0239)-0.1350(0.1014)-0.0105(0.0253)-0.1213(0.1000)-0.0069(0.0243)-0.1540(0.1030)-0.0093(0.0238)-0.1691*(0.0992)-0.0091(0.0240)-0.1320(0.1030)-0.0007(0.0010)0.0270(0.0395)-0.0008(0.0010)-0.0009(0.0010)-0.0009(0.0011)-0.0009(0.0011)-0.0007(0.0010)-0.0009(0.0010)lnTotal Import

0.0123(0.0088)0.0111(0.0095)

0.00694(0.0088)0.0109(0.0094)

0.0087(0.0085)0.0109(0.0095)

lnFinancial
Openness

0.0025(0.0214)0.0428*(0.0235)0.0445*(0.0249)0.0201(0.0323)

0.0448*(0.0236)

0.0530**(0.0242)0.0432*(0.0235)

VARIABLES
lnExchange Rate
Exchange Rate
Volatility
F.W.Coefficient

0.0099(0.0129)

Inflation
Differential
lnGDP

FX spread
Relative Income
Share of IntermediateGoods

0.0320(0.0316)-0.1041**(0.0471)

Share of Final Goods
Share of Primary
Goods
Constant
Export Country Fixed
EffectYear Fixed Effect0.5150***(0.0604)

0.5381***(0.0523)

0.5212***(0.0593)

0.3662(0.2510)0.1841(0.2880)0.2244(0.2790)0.2561(0.2690)0.2142(0.2840)0.3293(0.2400)

0.0115(0.0176)0.2280(0.2790)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

238

238

238

238

238

238

238

238

238

238

Number of countries

34

34

34

34

34

34

34

34

34

34

0.07140.06470.08500.0846

0.09810.12200.11600.17400.0999Within R-squared
0.0589Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1

6.

Conclusion
The country-level invoice currency shares revealed by this study indicate that in trade with many countries,
the invoice share of the yen is higher than the previously published data on currency shares for the world as awhole or by region. While the data for Japan’s trade overall give the strong impression that, compared to othercountries, a much higher share of imports and exports are invoiced in the USD and a lower share in the domestic
currency (i.e., the yen), the analysis here showed that this is mainly due to the choice of currency used in tradewith the U.S., China, and resource-rich countries, which account for large shares of Japan’s trade. The finding
using country-level data that, on a trade value basis, to a certain extent, the yen is chosen as the invoice currency
and, on a transaction number basis, an even larger share of trade is invoiced in yen, is a significant contribution
both in the field of academia and for industry.
The same can be said about the use of partner country currencies. For example, the Thai baht, which,according to previously available data, was used as an invoice currency in only 1% of exports to Asia, was foundto be used in 16% of exports to Thailand on a value basis and 17% on a transaction number basis. Moreover, notonly were exports invoiced in the partner country currency in the case of advanced country currencies such as
the Australian dollar (invoice share on an export value basis in 2020: 61.7%), Canadian dollar (46.8%), and New
Zealand dollar (36.8%), but also to some extent in the case of emerging market currencies such as the Russian
ruble (37.2%), Mexican peso (11.7%), Chinese yuan (10.4%), Indian rupee (9.6%), and Brazilian real (8.9%).
Such information benefits firms newly starting trade with these countries and compiling and analyzing such data24

is of great significance.
From our empirical analysis exploring the determinants of invoice currency, we confirm our previous
studies’ tendency that the intermediate goods trade share reduces the yen invoicing and increases the USD
invoicing in export. We also confirm that the higher the import of the final goods, the more likely it is to use theyen invoicing in import, which explains the high yen invoice share of imports from Europe. The emerging
currency invoicing share is significantly negatively related to the F.W. coefficient and transaction costs, which
has been confirmed in other previous studies. In recent years, policies to lower transaction costs of local
currencies, such as the internationalization policy of the Chinese yuan and the LCSF of ASEAN countries, havebeen actively implemented, and Asian currency-denominated transactions may further increase Japan's trade in
the future.
One concern is that the widening of the inflation gap and the depreciation of the yen have a negative impact
on yen invoicing. The recent trend of yen depreciation and an inflationary gap between Japan and its major
trading partner countries mean that Japanese firms will be further exposed to foreign exchange risk. Whatmechanisms are at work to negatively impact yen invoicing will need to be further investigated.
The U.S.-China trade war that broke out in 2019, the COVID-19 pandemic and supply shortages ofintermediate goods such as semiconductors since the following year, and the hike in resource prices due to
Russia’s invasion of Ukraine are leading to the restructuring of Japanese firms’ supply chains and changes in thecomposition of goods traded (such as a decrease in automotive-related parts and increase in electronic parts).
The trend toward a weaker yen, which has become more pronounced since early 2022, may bring about evenmore significant structural changes in Japanese exports and imports, including the return of some supply chainsto the domestic market in the future. To determine what factors are driving preferences for invoicing in the USD,
yen, or trade partner currency, it will be necessary to combine country-level information on the type of goods
traded (by item and by processing stage/type of process) and trading partners (intra- or inter-firm trade), as wellas information on the exchange rate system and exchange rate fluctuations in the partner country currency, andexamine the determinants of the choice of invoice currency in detail based on such information. We wish totackle these issues in the future.

25

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27

Appendix 1: Information of All Variables' Descriptive Statistics
Information of All Variables' Descriptive Statistics
Variables

Obs.

Mean

Std. Dev.

Min.

Max.

ExportYen Invoice Share (value based)

238

0.36540.15490.06500.8437USD Invoice Share (value based)

238

0.35880.21410.04740.8806

Local Currency Invoice Share (value based)

237

0.22180.25790.00000.8806

Yen Invoice Share (transaction number based)

238

0.48780.16700.16190.9592USD Invoice Share (transaction number based)

238

0.27860.20180.00970.8110Local Currency Invoice Share (transaction number based)

238

0.18130.22150.00000.7934

Total Export Value

238

27.6685

1.165025.0551

30.4223

Log GDP231 1977.6430 3803.8340

49.9215 21372.5700

Number of Subsidiaries of Japanese Firms

238

18.0000 6670.0000

Chinn & Ito Index

231

FX Spread (Bid-Ask Spread in Bloomberg quotation)

224

Nominal Exchage Rate (v.s. the Japanese yen)

231

Exchange Rate Volatilities (in 2 years)

231

0.0542

Inflation Differential (CPI difference with Japan)

231

1.46392.7546238

201.7775

227.3909

Country Specific Data

Financial Market Openness Index

1

710.3739 1184.2670
1.1953

1.3713-1.22622.32200.0926

0.09820.00410.493352.0330

52.99020.0046186.2216

0.03280.01220.1965-2.9868

15.3434

20.6407 1036.8540

2238

0.55750.34590.00001.3851

Import Share from Japan in the Country's Total Imports

210

0.05290.03950.00730.1772231

46.731435.1128

2.8887160.2598Intermediate Goods Share in Export from Japan

217

0.56410.1546

0.21360.8166

Yen Invoice Share (value based)

238

0.30210.14110.04060.6592USD Invoice Share (value based)

238

0.50840.28490.0476

0.9510Local Currency Invoice Share (value based)

238

0.17970.22710.00000.8332

Yen Invoice Share (transaction number based)

238

0.39380.21190.00400.9162USD Invoice Share (transaction number based)

238

0.49190.30170.05590.9960Local Currency Invoice Share (transaction number based)

238

0.11420.17650.00000.7543

Total Import Value

238

27.87930.949326.1605

30.6080

Log GDP238

6.73731.14104.6631

9.9699Number of Subsidiaries of Japanese Firms

238

Chinn & Ito Index

224

1.16001.3778-1.2262

FX Spread (Bid-Ask Spread in Bloomberg quotation)

238

0.07780.08390.00410.4933Nominal Exchage Rate (v.s. the Japanese yen)238

52.620254.8761

0.0025186.2216

Exchange Rate Volatilities (in 2 years)

238

0.04700.02820.0116

0.1965

Inflation Differential (CPI difference with Japan)

224

1.48602.7883-2.9868

15.3434Frankel & Wei Coefficient
Relative Income

3

ImportCountry Specific Data

1

698.5294 1189.5540

2.0000 6670.0000
2.3220238

263.2893

320.6911

2238

0.5866

0.33800.00001.3851

Export Share to Japan in the Country's Total Exports

238

0.05490.05120.00000.2622238

54.184337.90132.8887168.9007

238

0.35930.23390.00000.8424238

0.40910.17730.04990.9628238

0.23170.28520.00060.9501

Financial Market Openness Index
Frankel & Wei Coefficient
Relative Income

3

Final Goods Share in Japanese Import from the Country

4Intermediate Goods Share in Japanese Import from the Country
Primary Goods Share in Japanese Import from the Country 4

420.6407 1815.3390

Authors' calculation.
Note 1: Financial Openness is the ratio of total foreign assets and liabilities to nominal GDP followed by Lane and Milesi-Ferretti (2003).
Note 2: F.W. coefficient is a country's currency's USD coefficient of Frankel and Wei (1994) regression model.
Note 3: Relative income is calculated by a country's per capita income relative to that of U.S. followed by Ito and Kawai (2016).
Note 4: Data are based on RIETI TID Data 2020 (https://www.rieti.go.jp/en/projects/rieti-tid/).

28

Appendix 2: Share based on Transaction Number (Export)
Share based on Transaction Number (EXPORT)JPY
VARIABLES
lnExchange Rate

JPY

JPY

JPY

JPY

JPY

JPY

Local

Local

Local

Local

Local

Local

Local

Local

USD

USD

USD

USD

USD

USD

0.022

0.007

0.037

0.051

0.059

-0.026-0.055-0.0571*-0.030-0.041-0.0470.039

0.0692*0.0686*

0.040

0.047

0.053

(0.0479)(0.0441)(0.0362)(0.0438)(0.0460)(0.0243)(0.0336)(0.0310)(0.0231)(0.0347)(0.0344)(0.0290)(0.0343)(0.0384)(0.0305)(0.0357)(0.0351)

Exchange Rate
Volatility

USD-0.1181*-0.097-0.123-0.217*-0.100-0.1010.225**

0.062

0.065

(0.0615)(0.1050)(0.1030)(0.1110)(0.1100)(0.1190)(0.0945)(0.0910)(0.0971)

F.W.Coefficient

Inflation
Differential

0.001

0.001

0.000

0.007

0.011

-0.0323** -0.0324** -0.0332** -0.0336** -0.0382** -0.0404**(0.0142)(0.0143)(0.0150)(0.0149)(0.0150)(0.0156)(0.0165)(0.0173)(0.0105)-0.0031** -0.0029** -0.0027** -0.0031** -0.0036**-0.0029** -0.0027** -0.0026** -0.0024**-0.0017-0.00150.0045*** 0.0042*** 0.0041*** 0.0039*** 0.0033**

0.0029*(0.0011)(0.0012)(0.0014)(0.0015)(0.0013)(0.0016)lnTotal Export(0.0012)(0.0012)(0.0014)(0.0014)(0.0157)(0.0012)(0.0161)

0.0273** 0.0275*** 0.0265** 0.0268** 0.0322*** 0.0341***(0.0157)

lnGDP(0.0012)(0.0012)(0.0100)(0.0012)(0.0105)(0.0012)(0.0098)(0.0012)(0.0094)(0.0015)(0.0101)-0.0237-0.04070.01520.00680.05090.02420.0238-0.0548-0.0558-0.0524-0.0222-0.0218

0.05230.0519(0.0344)(0.0407)(0.0386)(0.0360)(0.0428)(0.0509)(0.0498)(0.0515)(0.0535)(0.0390)(0.0443)(0.0437)(0.0456)(0.0469)0.0007-0.0077

0.0065(0.0081)(0.0112)(0.0120)

Share ofIntermediate Goods-0.0105-0.0087-0.0234-0.00780.00350.00200.01050.0039-0.0079-0.0065-0.0183-0.0085(0.0461)(0.0435)(0.0514)(0.0443)(0.0282)(0.0279)(0.0199)(0.0228)(0.0314)(0.0315)(0.0286)-0.033lnFinancial
Openness-0.0270-0.0363-0.03800.02550.0272(0.0296)(0.0288)(0.0290)(0.0216)(0.0219)

FX spread-0.0044-0.04200.0402(0.0196)(0.0276)(0.0355)

Relative Income

Constant

USD

Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect

0.000-0.0010.0018** 0.0020**-0.0015*-0.0017*(0.0007)(0.0007)(0.0008)(0.0008)(0.0008)(0.0008)-0.33900.14200.1180(0.4950)(0.1170)(0.2810)0.421*** 0.468***

0.348*

0.498***

0.718**

0.395

0.485**

0.243*** 0.330***

0.005

0.496

0.313

0.342

0.492

0.506

0.190**

0.100

0.459*-0.006

0.204

0.175

0.009

0.018

(0.123)(0.112)(0.188)(0.177)(0.292)(0.235)(0.211)(0.062)(0.090)(0.260)(0.346)(0.369)(0.365)(0.322)(0.338)(0.074)(0.091)(0.244)(0.371)(0.337)(0.335)(0.285)(0.301)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

231

231

224

217

217

217

203

231

231

224

224

217

217

217

203

231

231

224

224

217

217

217

203

Number of countries

33

33

32

31

31

31

29

33

33

32

32

31

31

31

29

33

33

32

32

31

31

31

29

Within R-squared

0.069

0.077

0.129

0.141

0.148

0.134

0.155

0.107

0.133

0.210

0.198

0.223

0.231

0.235

0.245

0.266

0.300

0.418

0.401

0.449

0.459

0.453

0.465

Import Country
Fixed EffectYear Fixed Effect

Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.129

Appendix 3: Share based on Value without US Sample (Export)
Share based on Value without US sample (EXPORT)VARIABLES
lnExchange Rate

JPY
JPY
JPY
JPY
JPY
JPY
JPY
JPY
Local
Local
Local
Local
Local
Local
Local
Local
USD
USD
USD
USD
USD
USD
USD
USD
USD
Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect0.0210(0.0486)

Exchange Rate
Volatility
F.W.Coefficient

0.00644(0.0449)-0.110*(0.0624)0.0202(0.0479)

0.0444(0.0457)

0.0344(0.0372)

0.0478(0.0450)

0.0560(0.0478)

0.0763(0.0878)0.0020(0.0178)0.0008(0.0139)-0.0031**(0.0012)-0.0186(0.0339)0.0010(0.0142)-0.0032**(0.0011)0.0015(0.0143)-0.0031**(0.0012)-0.0232(0.0345)0.0006(0.0150)-0.0029**(0.0013)-0.0391(0.0411)0.0150(0.0196)-0.0066*(0.0033)-0.0627(0.0836)

Inflation
Differential
lnGDP
lnTotal Export-0.0105(0.0455)-0.0087(0.0432)-0.0255(0.0305)-0.0055(0.0200)-0.0524*(0.0302)-0.0251(0.0228)-0.0481(0.0314)-0.0233(0.0278)0.0248(0.0286)-0.0420**(0.0192)-0.0331**(0.0158)-0.0028**(0.0013)
0.0512(0.0430)-0.0332**(0.0159)-0.0025**(0.0012)-0.0327*(0.0163)-0.0027**(0.0013)
0.0469(0.0463)-0.0340**(0.0149)-0.0020*(0.0011)-0.0327(0.0510)-0.0551**(0.0208)
0.003(0.0018)-0.0302(0.0470)0.0403(0.0295)

0.0702*(0.0349)0.225**(0.0966)

0.0240(0.0255)

0.0428(0.0315)

0.0711*(0.0392)

0.0431(0.0313)0.0497(0.0366)

0.0498(0.0335)

0.0638(0.0532)

0.0368**(0.0152)

0.0277**(0.0102)0.0044***(0.0013)0.0268**(0.0106)
0.0046***(0.0013)-0.0524(0.0391)

0.0270**(0.0101)
0.0043***(0.0012)0.0261**(0.0106)
0.0042***(0.0012)-0.0233(0.0445)0.0268***(0.00894)
0.0040***(0.0011)0.0168(0.0495)

0.0335(0.0201)
0.0022(0.0029)0.0233(0.0652)

0.00655(0.0119)0.435***(0.121)0.477***(0.111)0.435***(0.120)0.483***(0.169)0.365*(0.185)0.510***(0.174)0.716**(0.293)-0.1540***(0.0551)-0.0652(0.0459)0.2070(0.122)0.0004(0.0010)-0.6750(0.4770)0.975*(0.523)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Import ShareYear Fixed Effect-0.00384(0.0148)-0.00770(0.0114)

Relative Income

Import Country Fixed
Effect-0.0542(0.0330)-0.238**(0.107)0.00069(0.0080)

Share of IntermediateGoods
lnFinancial
Openness
FX spread

Constant-0.0224(0.0239)0.00162(0.0282)

0.565*(0.323)-0.111(0.0805)-0.0349(0.0488)-0.0102(0.0248)0.0013(0.0012)-0.5790(0.4750)0.613(0.362)0.174**(0.074)0.086(0.090)0.191***(0.066)0.154*(0.079)0.435*(0.242)-0.028(0.367)0.196(0.333)0.029(0.344)0.248**(0.0936)0.0645(0.0464)-0.198(0.121)-0.0022(0.0014)
1.091*(0.6400)-0.351(0.414)-0.0379(0.0277)-0.0392(0.0258)
0.0016**(0.0007)0.214***(0.059)0.307***(0.086)

0.194***(0.042)-0.026(0.259)0.462(0.349)-0.012(0.269)-0.00752(0.0311)0.0243(0.0216)0.0151(0.0229)0.0413(0.0342)-0.0015*(0.0008)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

224

224

224

217

217

210

210

203

224

224

224

217

217

210

217

203

224

224

224

217

217

217

210

217

203

Number of countries

32

32

32

31

31

30

30

29

32

32

32

31

31

30

31

29

32

32

32

31

31

31

30

31

29

0.07250.0657

0.130

0.128

0.140

0.146

0.228

0.117

0.147

0.175

0.217

0.205

0.219

0.271

0.160

0.260

0.294

0.316

0.397

0.416

0.399

0.446

0.472

0.239

Within R-squared
0.0655
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.130Appendix 4: Share based on Transaction Number (Import)
Share based on Transaction Number (IMPORT)JPY
VARIABLES
lnExchange Rate

JPY

JPY

JPY

JPY

JPY

JPY

JPY

Local

Local

Local

Local

Local

Local

USD

USD

USD

USD

USD

USD

USD

USD

USD

0.0203-0.0009

0.0028-0.0103-0.0036-0.0015-0.0225-0.0091-0.0341-0.0196-0.0188-0.0328-0.0195-0.0218-0.0192-0.0001-0.00160.02920.02390.02310.02400.0220(0.0453)(0.0440)(0.0404)(0.0386)(0.0395)(0.0343)(0.0353)(0.0173)(0.0234)(0.0240)(0.0190)(0.0196)(0.0241)(0.0189)(0.0215)(0.0157)(0.0336)(0.0371)(0.0371)(0.0347)(0.0345)(0.0372)(0.0357)(0.0352)(0.0316)-0.2500-0.3202*-0.3814*-0.2570-0.1800-0.3301**

0.04520.01530.03560.1402*0.0143-0.00170-0.0538

0.23400.301q**0.3063**0.3051*0.2962**0.2433*0.3254**-0.0097(0.197)(0.160)(0.198)(0.158)(0.143)(0.146)(0.0614)(0.0669)(0.0663)(0.0786)(0.0755)(0.0804)(0.0582)(0.1880)(0.1390)(0.1440)(0.1790)(0.1350)(0.1240)(0.1340)-0.00851-0.0229(0.0360)
Inflation Differential
lnGDP

0.02360.01910.00253(0.0266)(0.0255)

0.00400.00190.00240.00240.00190.0025-0.0016-0.0005-0.0002-0.0005-0.0004-0.00030.0002-0.0039-0.0034-0.0033-0.0033-0.0033-0.0031-0.0034(0.0031)(0.0032)(0.0030)(0.0029)(0.0027)(0.0026)(0.0014)(0.0011)(0.0011)(0.0010)(0.0011)(0.0011)(0.0010)(0.0028)(0.0027)(0.0029)(0.0028)(0.0027)(0.0027)(0.0025)

0.0722**0.0717**0.0572**0.0653**0.0582**-0.0375**-0.0457**-0.0519**-0.0371**-0.0393**-0.0321*-0.0300-0.0320-0.0309-0.0299-0.0340*-0.0312(0.0298)(0.0314)(0.0263)(0.0267)(0.0256)(0.0174)(0.0205)(0.0210)(0.0175)(0.0180)(0.0175)(0.0190)(0.0242)(0.0228)(0.0193)(0.0195)(0.0190)-0.00887

0.0480(0.0592)
lnTotal ImportlnFinancial
Openness-0.0359(0.0310)(0.0621)0.0783-0.0436-0.0111(0.0661)(0.0289)(0.0596)

FX spread
Relative Income

0.04480.04350.01170.0455-0.0391-0.0378-0.0295-0.0121-0.0056-0.0055

0.0116-0.0036(0.0584)(0.0581)(0.0469)(0.0517)(0.0266)(0.0315)(0.0328)(0.0182)(0.0502)(0.0498)(0.0454)(0.0451)-0.0737

0.0752**(0.0626)
Share of IntermediateGoods

0.0049(0.0299)(0.0625)-0.07850.03050.0117(0.0917)(0.0436)(0.0617)

Share of Final Goods

0.377**-0.105-0.182(0.139)(0.102)(0.124)-0.0900

Share of Primary
Goods

Year Fixed EffectLocal

0.0153

F.W.Coefficient

Export Country Fixed
EffectLocal(0.0379)
Exchange Rate
Volatility

Constant

Local

Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect0.0183(0.0751)

0.0778(0.0169)(0.0678)

0.353***

0.348***

0.462-1.974*-1.302-1.146-1.550*-1.2010.166***

0.152***-0.135

1.209**

1.646**

1.344**

1.185**

1.300**

1.012*

0.500***

0.502***

0.666

1.270**

1.382

1.275**

1.264**

1.452**

1.294**(0.082)(0.085)(0.378)(1.111)(0.790)(0.776)(0.765)(0.748)(0.038)(0.039)(0.173)(0.503)(0.699)(0.524)(0.502)(0.531)(0.506)(0.072)(0.073)(0.411)(0.556)(0.924)(0.587)(0.578)(0.546)(0.550)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

238

Number of countries

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

34

Within R-squared

0.046

0.047

0.062

0.112

0.124

0.114

0.229

0.114

0.034

0.043

0.049

0.074

0.085

0.108

0.083

0.101

0.085

0.050

0.050

0.086

0.098

0.099

0.099

0.099

0.153

0.118

Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.131

Appendix 5: Share based on Value without US Sample (Import)
Share based on Value without US sample (IMPORT)JPY
VARIABLES

lnExchange Rate

JPY

JPY

JPY

JPY

JPY

JPY

Local

Local

Local

Local

Local

Local

Local

Local

Local

USD

USD

USD

USD

USD

USD

USD

USD

USD

0.01280.00610.03230.02130.02900.02020.02280.0228-0.0113-0.0041-0.0199-0.0097-0.0087-0.0191-0.0106-0.0112-0.0113-0.0005-0.0063-0.0146-0.0095-0.0095-0.0101-0.0066-0.0089-0.0088(0.0343)(0.0322)(0.0285)(0.0266)(0.0279)(0.0276)(0.0287)(0.0278)(0.0138)(0.0164)(0.0172)(0.0141)(0.0145)(0.0139)(0.0132)(0.0130)(0.0133)(0.0288)(0.0285)(0.0266)(0.0253)(0.0253)(0.0255)(0.0246)(0.0240)(0.0242)

Exchange Rate
Volatility
F.W.Coefficient

0.09450.127

0.0777

0.167

0.188

0.140

0.04890.01400.02930.114*

0.02740.0216

0.0339-0.0810-0.125-0.126-0.130-0.165-0.182*-0.142(0.107)(0.104)(0.103)(0.114)(0.112)(0.112)(0.0483)(0.0467)(0.0448)(0.0559)(0.0531)(0.0559)(0.0492)(0.111)(0.106)(0.106)(0.103)(0.106)(0.102)(0.106)0.0114-0.01220.00989(0.0167)(0.0110)(0.0129)

Inflation Differential

lnGDP

0.00162*0.00100.00130.00120.00100.0013-0.0010-0.0005-0.0001-0.0004-0.0004-0.0003-0.0004-0.0006-0.0007-0.0008-0.0008-0.0008-0.0006-0.0008(0.0010)(0.0012)(0.0010)(0.0010)(0.0009)(0.0009)(0.0008)(0.0007)(0.0008)(0.0007)(0.0007)(0.0007)(0.0007)(0.0010)(0.0010)(0.0011)(0.0011)(0.0011)(0.0010)(0.0010)-0.04310.0398*0.0277(0.0355)(0.0230)(0.0396)lnTotal ImportlnFinancial
Openness

0.01440.01930.00910.01160.0091-0.0178*-0.0243**-0.0271**-0.0172*-0.0178*-0.0172*

0.01210.01230.00718

0.01120.009100.0112(0.0154)(0.0161)(0.0142)(0.0137)(0.0143)(0.0093)(0.0110)(0.0114)(0.0092)(0.0094)(0.0093)(0.0095)(0.0088)(0.0088)(0.0094)(0.0086)(0.0095)

0.0307-0.0350*0.00116(0.0240)(0.0180)(0.0217)

FX spread

Relative Income-0.0093-0.0105-0.0205-0.0089-0.0409**-0.0397*-0.0372*-0.0401*

0.0445*0.0450*0.0534**0.0434*(0.0212)(0.0195)(0.0176)(0.0185)(0.0171)(0.0198)(0.0197)(0.0197)(0.0251)(0.0237)(0.0243)(0.0237)-0.05220.0506**0.0207(0.0320)(0.0197)(0.0324)

Share of IntermediateGoods-0.0360

0.00850.0324(0.0323)(0.0176)(0.0317)

Share of Final Goods

0.123**-0.0312(0.0543)(0.0491)

Share of Primary
Goods
Constant

JPY

Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect Fixed Effect-0.106**(0.0468)-0.01630.00490.0120(0.0253)(0.0097)(0.0185)0.275***

0.282***

0.517**-0.2990-0.09270.0141-0.1200-0.00280.186***

0.179***-0.06390.679**

1.026**

0.765***

0.662**

0.695**

0.666**

0.503***

0.509***

0.352

0.190

0.178

0.237

0.195

0.310

0.209

(0.070)(0.067)(0.238)(0.511)(0.434)(0.418)(0.401)(0.417)(0.030)(0.032)(0.135)(0.265)(0.375)(0.276)(0.260)(0.272)(0.262)(0.059)(0.058)(0.250)(0.278)(0.287)(0.269)(0.284)(0.240)(0.279)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No. of observations

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

231

Number of countries

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

33

Within R-squared

0.05410.0601

0.108

0.104

0.139

0.108

0.173

0.09270.02080.0346

0.06790.0683

0.105

0.147

0.0891

0.09780.0876

0.05730.06320.08510.08460.0846

0.123

0.117

0.177

0.100

Export Country Fixed
EffectYear Fixed Effect

Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.132