KGRI Working Papers
No.5Internationalization of the Yen in Asia:
Has Regional Economic Integration Promoted Yen Invoiced Trade?

Version1.0
April 2017

Kiyotaka Sato 1

Keio University Global Research Institute© Copyright 2017 Kiyotaka Sato
Professor, Department of Economics, Yokohama National University
Adjunct Professor, School of Business and Law, Edith Cowan University
1

Email: sato@ynu.ac.jp

Internationalization of the Yen in Asia:
Has Regional Economic Integration Promoted Yen Invoiced Trade?

Kiyotaka Sato*
Yokohama National University
Edith Cowan University

April 2017

Abstract
By investigating various data at both customs and firm level, we present the new
evidence of Japanese firms’ invoice currency choice. Contrary to stylized facts, wedemonstrate that Japanese firms tend to choose the U.S. dollar or importer’s currency for
trade invoicing in Japanese exports to advance countries, irrespective of difference inindustry characteristics or product differentiation, while they choose the yen invoiced
transactions in exports to Asian countries. More interestingly, Asia-based Japanesesubsidiaries tend to use mainly the yen and U.S. dollar for trade invoicing in their tradewith Japanese head offices and group companies. On the other hand, in Asia-based
subsidiaries’ trade with other countries excluding Japan, the yen is rarely used, even in
intra-firm trade, and the U.S. dollar is dominantly used for trade invoicing. Even though
Japanese subsidiaries increase their intra-firm trade with other Asia-based groupcompanies, the use of the yen in Asia will not be growing. Instead, the use of the U.S.
dollar will be increasing. These findings have significant policy implications for further
use of the yen in the process of Asian economic integration.

JEL Classification: F23, F31, F33
Keywords: Yen internationalization; invoice currency; intra-firm trade; Asian economic
integration; pricing-to-market (PTM); regional economic integration*

Professor, Department of Economics, Yokohama National University, and Adjunct Professor,
School of Business and Law, Edith Cowan University. Email: sato@ynu.ac.jp

11. Introduction
Asian countries have experienced a rapid and high economic growth for the last
several decades. China’s economic growth has been particularly remarkable since theearly 2000s, with its growing trade surplus and foreign reserve accumulation. In contrast,
Japanese economy has suffered from prolonged deflation and very slow economic growth
for the last few decades. Despite this different economic performance, China and Japanare now the second and the third largest countries in the world, respectively, in terms ofGDP, and Asia is expected to produce 50 percent of the world GDP in the year 2050.
Given such a large role of China and Japan in the Asian region, economic cooperation
between China and Japan needs to be strengthened for further development of regionalcountries.
Asian countries have been integrated through trade and foreign direct investment,
especially through active operations of multinational companies in Asia. However, notthe local currency but the U.S. dollar is typically used in Asian financial transactions.
Even in intra-Asian trade, the U.S. dollar is said to be generally chosen as an invoice(contract) currency. In recent years, China started to internationalize the renminbi (RMB)
in trade transactions. The question is whether RMB-invoiced trade transactions have been
increasing and whether RMB can take the place of the U.S. dollar in the future. To get aclue to answer these questions, it will be informative and useful to learn the experienceof the Japanese yen for its internationalization process.
This chapter discusses the international use of the yen focusing on a role of the
trade invoice currency. First, we observe to what extent the yen is used in Japanese tradeby collecting the publicly available data. We show that the pattern of invoice currency
choice in Japanese trade conflicts with the empirical regularity, so-called “stylized facts.”
Second, to investigate why the invoice currency choice differs between Japanand other advanced countries, we look at the firm-level data of invoice currency choice.
The firm-level information is particularly important in the context of Asian economic
integration where foreign multinational companies play an important role in intraregional trade. However, it is very hard to obtain the information on which currency isused in trade of multinational companies. This chapter uses the results of a large-scalequestionnaire survey conducted by Research Institute of Economy, Trade and Industry(RIETI) to discuss the invoice currency choice of Japanese head offices and their overseas
subsidiaries.
Third, we particularly focus on the invoice currency choice in intra-regional
trade in Asia, especially intra-firm trade. Since such firm-level data is not publicly

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available, our analysis has significant implications on the currency choice under global
value chains that are lively discussed in the existing studies. We reveal that Japanese
overseas subsidiaries in Asia tend to use the yen mainly in trade with Japan, but U.S.
dollar invoiced trade is also large, or even larger than yen invoiced trade.
The remainder of this chapter is as follows. Section 2 reviews the theory ofinternational currency and presents the stylized facts of invoice currency choice. Section
3 discusses whether the choice of invoice currency in Japanese exports and imports is
consistent with the stylized facts. Section 4 shows the industry breakdown data on theinvoice currency choice in Japanese exports and imports. Section 5 investigates the firmlevel choice of invoice currency in Japanese exports, and Section 6 discusses the overseas
subsidiaries’ choice of invoice currency. Finally, Section 7 concludes this chapter.

2. Trade Invoice Currency: Preconditions and Stylized Facts
2.1 Preconditions for International Currency
If a specific currency is used in international transactions, the currency can be
regarded as an “international currency”. To become the international currency, a currency
is required to meet the following two principal conditions.1
First, without confidence in political stability of the country concerned, it is hard
to use the currency for international transactions. The confidence in the value of thecurrency is also necessary when using the currency for international transactions. Japan
meets both conditions. Although Japan has experienced prolonged recession for morethan two decades, the yen is typically regarded as a “safe currency” by investors. Indeed,
the exchange rate of the yen has been fluctuating, sometimes very rapidly andsubstantially. But, once the United States or European countries fall into a criticalsituation, investors in the world tend to purchase the yen as a safe currency.
Second, if a country imposes strict capital controls or financial regulations, thecountry’s currency will not be used for international transactions. Thus, a country needs
to maintain the convertibility of its current and capital accounts. The country also has
well-developed financial markets so that the currency can be easily financed or procured.
Japan started to liberalize domestic financial markets from the mid-1970s and accelerated
the liberalization process from the mid-1980s. In December 1980, the Foreign Exchange
and Foreign Trade Control Law was revised to liberalize all foreign exchange transactions
1

The following discussion is based on Sato (1999).

3

in principle. The May 1984 Yen/Dollar Agreement specified substantial liberalization
measures to be adopted. In April 1998, the revised Foreign Exchange and Foreign Trade
Law was implemented, which brought the first major step of the Japanese “Big Bang”
and completely deregulated domestic and foreign capital transactions and foreignexchange operations.2
These liberalization processes were expected to facilitate the international use of
the yen, especially yen-invoiced trade. However, as we will see in Section 3, the yen isless used for Japanese trade than the U.S dollar.
2.2 Stylized Facts
In the 1970s and early 1980s, a number of studies investigated the empiricalregularities of the invoice currency choice. Although the data is not readily available,
these studies presented the following stylized facts:3
1. Trade of manufactured products between advanced countries tends to be invoicedin the exporter’s currency.4
2. Trade of manufactured products between advanced and developing countries tends
to be invoiced in the advanced country’s currency or, to a lesser extent, in a majorinternational currency such as the U.S. dollar.5
3. Differentiated products such as machinery products tend to be invoiced in theexporter’s currency. More homogeneous products such as crude oil and primarycommodities are typically invoiced in the international currency such as the U.S.
dollar.6
The above stylized facts indicate that the invoice currency choice is conditionalon which country is a trading partner and on the characteristics of goods traded. The
question is whether Japan’s currency invoicing pattern conforms to the stylized facts.
2

Kawai (1996) presents a brief summary of the Japan’s financial liberalization process. See
also Tavlas and Ozeki (1992).
3
Ligthart and da Silva (2007) make a good literature review concerning the stylized facts. See
also Kawai (1996) and Sato (1999) for a good summary and discussion on the empiricalregularities of the choice of invoice currency.
4This empirical regularity is known as the “Grassman’s Law” (Grassman, 1973, 1976).
5This stylized fact is based on the empirical work of Grassman (1973) and Page (1977, 1981).
6
See McKinnon (1979) for further details.

43. Evidence from Japanese Exports and Imports
3.1 Evidence from Japanese Exports
Figures 1 and 2 present the share of the yen and the U.S. dollar in Japanese
exports and imports, respectively, from 1980 to 2016. Japanese Ministry of Financestarted to publish semi-annually the share of invoice currency in Japanese exports andimports from the second half of 2000.7 Although industry- or commodity-level data is
not published, the information on the choice of invoice currency by destination or source
country (region) is available. The four destination and source countries (regions) are as
follows: the world, the United States, European Union (EU), and Asia.
***** Figure 1 around here. *****Let us look at Figure 1(a) that shows how the choice of invoice currency inJapanese exports to the world has changed from 1980 to 2016. First, the U.S. dollar
invoiced share is higher than the yen invoiced share. Second, we cannot observe any clear
upward trend in the share of yen invoicing. The share of yen-invoiced transactions rosefrom 28.9 percent in 1980 to 42.0 percent in 1983, but the share declined to 33.4 percent
in 1987. The fall of the yen invoiced share from 1983 is typically explained by the pricingto-market (PTM) behavior of Japanese exporters. 8 Specifically, during the rapid yen
appreciation period from 1985 to 1987, Japanese firms stabilized the export price in the
U.S. market by choosing the U.S. dollar as an invoice currency. From the mid-1980s to
2016, the share of yen invoicing has stayed within a narrow range from 33 to 41 percent
in Japan’s exports to the world. As of 2016, 51.0 percent of Japanese exports to the world
are invoiced in U.S. dollars, while 37.0 percent are invoiced in the yen.
The above observation indicates that Japanese invoice currency choice conflicts
with the stylized fact 1. Previous studies also argued that Japanese invoice currency
choice differed markedly from the other advanced countries. Specifically, the UnitedStates typically choose the U.S. dollar invoiced transactions in both exports and imports.
7

The data is available from the website of the Trade Statistics of Japan, Ministry of Financefrom the second half of 2000 (http://www.customs.go.jp/toukei/shinbun/tradest/tuukahappyou.htm). The data for 1999 or before was published from Ministry of International
Trade and Industry (MITI) and Bank of Japan.
8
See Krugman (1987), Marston (1990), and Tavlas and Ozeki (1992).

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Before the introduction of the Euro in 1999, European countries also had a strong
tendency to use their own currency in their exports.
In fact, as shown in Figure 1(b), Japanese exports to the United States are mainly
invoiced in U.S. dollars. Figure 1(c) also indicates that only 30.5 percent of Japanese
exports to European Union (EU) are invoiced in the yen. Although not reported in Figure1(c), 53.9 percent are invoiced in European currencies, mainly the Euro, in 2016.9 Thus,
this observation strongly suggests that Japanese firms tend to choose local currency
invoicing in exports to advanced countries, which is consistent with the PTM behavior ofJapanese exporting firms,10 and again conflicts with the stylized fact 1.
More interesting evidence is the share of yen invoiced exports to Asia. Figure
1(d) shows that the share of yen invoiced exports has not increased for the last twentynine years in Japanese exports to Asia. Specifically, the share of the yen rose to about 50
percent or more in the early 1990s and in the first-half of 2010s. But, the share of the yen
declined to a large extent from 49.2 percent in 2010 to 43.2 percent in 2015, while theshare of the U.S. dollar increased from 48.7 in 2010 to 52.2 in 2015. In 2016, the shareof U.S. dollar invoicing somewhat declined to 48.6 percent, while the share of the yen
invoicing rose to 46.1 percent. But, the share of U.S. dollar invoicing still exceeds that ofyen invoicing, which also conflicts with the stylized fact 2.
Why is the role of the yen smaller in Asia than that of the U.S. dollar? Until
around the mid-1990s, when a question of yen internationalization was lively debated,
the use of the yen was expected to grow as the invoice currency in Asia, especially if
intra-firm trade increased between Japanese parent companies and Asia-based local
subsidiaries through active foreign direct investment by Japanese firms.11 In particular,
since most exports from Japan to Asia were regarded as capital goods and differentiatedproducts, the share of yen invoicing was expected to increase steadily. Although Japanesefirms have in practice built a regional production network for the last few decades,
however, the U.S. dollar has been used more than the yen in Japanese exports to Asia. To
consider why the share of yen invoiced exports is so small, it is necessary to investigate
the far more detailed data on the invoice currency in Japanese exports by industry.
9

The share of Euro, UK pound, and Swedish krona is 47.9 percent, 5.6 percent, and 0.4
percent, respectively, in the first-half of 2016. See the website of the Trade Statistics of Japan,
Ministry of Finance (http://www.customs.go.jp/toukei/shinbun/trade-st/tuukahappyou.htm).
10
For an empirical analysis of the PTM behavior and the exchange rate pass-through inJapanese exports, see Knetter (1989, 1993), Marston (1990), Takagi and Yoshida (2001) andParsons and Sato (2008).
11
Kawai (1996), for instance, pointed out that the international use of the yen would naturally
grow as Japan’s economic interdependence with Asia deepened through intra-industry trade,
foreign direct investments and various types of financial flows.

63.2 Evidence from Japanese Imports
Let us turn to the share of invoice currency in Japanese imports. Figure 2(a)presents the share of the yen and the U.S. dollar in Japanese imports from 1980 to 2016.
First, in Japanese imports from the world, the share of the yen increased gradually from
2.4 percent in 1980 to 25.5 percent in 2002, but it declined to 20.8 percent in 2014. In
2016, the share of the yen increased again to 26.8 percent. But, the U.S. dollar is the mostused currency in Japanese imports and its share is 66.7 percent in 2016.
*** Figure 2 around here.***Why is the U.S. dollar share very high in Japanese imports? It is well known thatJapan has imported a large amount of crude oil and raw materials that tend to be invoiced
in U.S. dollars as suggested by stylized fact 3. However, Japan’s import pattern has
structurally changed in recent years with a substantial increase in imports of manufactured
products including both finished goods and intermediate inputs from foreign countries.
Figure 2(c) shows the invoice currency choice of Japanese imports from EU countries,
where the yen share is surprisingly high. As of 2016, 59.2 percent of Japanese imports
from EU countries are invoiced in the yen. Although not reported in Figure 2(c), the euro
share is only 27.8 percent.12 This evidence indicates that trade of manufacturing goods
between advanced countries is less likely to be invoiced in U.S. dollars. Instead, either
exporter’s or importer’s currency tends to be used in trade between advanced countries.
It must be noted, however, that stylized fact 1 tells us that exporter’s currency
tends to be used in trade between advanced countries. Figure 2(c) does show that theimporter’s currency (i.e., the yen) is largely used in Japanese imports from EU countries.
In addition, Figure 1(c) also shows that 47.9 percent of Japanese exports to EU countries
are invoiced in the importer’s currency (i.e., euro), while only 30.5 percent is invoiced in
the yen. Thus, contrary to the stylized fact 1, the evidence from Japanese invoice currency
choice suggests that the importer’s currency tends to be used in trade between advanced
countries, which is a typical PTM behavior discussed in the literature.
Figure 2(d) shows, however, that more than 70 percent of imports from Asia
are invoiced in U.S. dollars and the share of yen invoicing has never exceeded 30 percent.
12

The share of euro in Japanese imports from EU countries is not presented in Figure 2(c). The
data is taken from the Trade Statistics of Japan, Ministry of Finance. As of 2016, the U.S. dollar
share is only 9.9 percent in Japanese imports from EU countries.

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In 2016, only 25.9 percent of Japan’s imports from Asia are invoiced in the yen, and 70.4
percent are invoiced in U.S. dollars. It is confirmed that the U.S. dollar is still dominantly
used in trade between Japan and Asia.
This dominant use of the U.S. dollar is unlikely to be explained by the stylized
facts. As the regional integration has been deepening and production network has beendeveloped, trade of manufacturing products has been growing between Japan and Asian
countries. According to stylized fact 2, manufacturing products tend to be invoiced in theadvanced country’s currency in trade between the advanced country and the developing
country. In addition, Japanese manufacturing subsidiaries have increased their overseas
production in Asia, and intra-firm trade of manufacturing products including bothfinished goods and intermediate inputs has grown considerably between Japan and Asia.
It should be natural to expect further use of the yen in trade between Japan and Asia.
Thus, our main objective is to investigate why the U.S. dollar is used more than
the yen in Japanese trade with Asia. To discuss why the use of the yen is relatively smallin Asia, we will observe the industry breakdown data of the invoice currency choice inSection 4. We then investigate the firm-level invoice currency choice in Section 5 andafter, the data of which is obtained from the questionnaire survey studies.

4. Japan’s Invoice Currency Choice by Industry
To analyze the industry-level choice of invoice currency in Japanese exports andimports, let us look at the industry-breakdown data published by the Bank of Japan (BOJ).
BOJ publishes only December data from 1999 to the present.13 We observe both theDecember 2015 and 1999 data and check whether the industry-level invoicing behavior
has changed over time.
4.1 Industry-level Currency Choice in Japanese Exports
Table 1 presents the industry-breakdown data of invoice currency choice as ofDecember 2015. First, the share of yen invoiced exports is generally much lower than thatof U.S. dollar invoiced exports in all industries except General Machinery. In exports of
13

BOJ collects the export price data when cargo is loaded in Japan at the customs clearance
stage, and the free on board (FOB) prices at the Japanese port of exports are surveyed.
Information on invoice (contract) currency choice for each transaction is collected by thesurvey. Import price data is also collected in a similar way. See the BOJ website(https://www.boj.or.jp/en/statistics/pi/cgpi_2010/index.htm/) for further details.

8Textiles, Chemicals & Related Products, and Metals & Related Products, the share of U.S.
dollar invoicing exceeds 70 percent. Even in exports of Electric & Electronic Products
and Transportation Equipment, which are generally considered differentiated products,
the yen invoiced share is only 36.0 percent and 29.8 percent, respectively. Thus, stylized
fact 3 does not necessarily hold in Japanese machinery exports. Only in the case ofGeneral Machinery exports, the share of yen invoicing is 59.4 percent, which is consistent
with the stylized fact 3.
*** Table 1 around here.***Second, most Japanese exports are invoiced in only three currencies: the yen,
U.S. dollar, and euro. In exports of Transportation Equipment, however, other currencies
account for 10.5 percent, which suggests that Japanese firms tend to choose the importer’scurrency in their exports of Transport Equipment to advanced countries, which is literally
a PTM behavior.
Third, the invoicing behavior has not changed much from 1999 to 2015, but theshare of yen invoicing has increased to some extent in most industries (Table 2). The
question of why the yen invoicing share has increased is worth investigating, and it will
be discussed in the subsequent sections.14*** Table 2 around here.***4.2 Industry-level Currency Choice in Japanese Imports
Let us next look at the invoice currency share in Japanese imports. As of
December 2015, 91.3 percent of imports of Petroleum, Coal & Natural Gas, which
accounts for 30 percent of Japanese total imports, are invoiced in U.S. dollars (Table 1).
As of December 1999, 100 percent of the above imports are invoiced in U.S. dollars(Table 2). Although the U.S. dollar share has declined somewhat, it is safe to say that theinvoice currency choice in Japanese imports is consistent with stylized fact 3. Table 1 also
shows that 88.1 percent of imports in Metals & Related Products are invoiced in foreign
currencies as of December 2015.
In Japanese imports of three major machinery industries (General Machinery,
Electric Machinery, and Transport Equipment), 33‒37 percent are invoiced in the yen,while more than 60 percent are invoiced in foreign currencies (Table 1). More14

See also Ito et al. (2016b) for an analysis of more disaggregated data.

9

interestingly, the share of yen invoicing is higher in Japanese imports of Transport
Equipment than in the corresponding exports. The share of yen invoicing between exports
and imports is not very different even in the Electric Machinery. This result is quite
interesting, because stylized fact 1 says that trade of machinery exports between advanced
countries tends to be invoiced in the exporter’s currency. Again, the yen invoicing share
has increased from 1999 to 2015 in imports of Japanese three major machinery industries.

5. Firm-Level Invoice Currency Choice in Japanese Trade
We have so far observed the invoice currency choice of Japanese exports andimports at a country level and at an industry level. We have shown that the invoicecurrency choice of Japanese exports and imports conflicts with the stylized facts. Japanesecurrency invoicing pattern differs markedly from the invoicing pattern of other advanced
countries. But, due to data availability limitations, we have not yet investigatedsufficiently why the U.S. dollar is more used in Japanese trade than the yen, especially intrade with Asian countries.
In this section, we investigate the firm-level invoice currency choice mainly
focusing on Japanese exports. Previous studies conducted the questionnaire survey withJapanese head offices in 2009 and in 2013 to obtain the firm-level information on their
invoicing choice by industry/commodity and by export destination.15 We utilize theirfindings and information on firm-level invoice currency choice, and attempt to discuss
why the U.S. dollar is more used than the yen in Asia.
5.1 Invoice Currency Choice of Japanese Head Offices’ Exports to the World
Figure 3 presents the share of invoice currency in Japanese Head Offices’ exports
to the world. This chapter reports a simple arithmetic average of the shares of invoicecurrency answered by sample firms. However, the arithmetic average figures do not take
into account the export size of sample firms, which tends to distort the actual share of
invoice currency. To reveal the actual share of invoice currency, Figure 3 also reports theweighted average share of invoice currency by using the information on the amounts of15

See Ito et al. (2010, 2013, 2016a) for the details of their questionnaire survey studies.
Questionnaires were sent out to 920 firms in September 2009 and to 962 firms in September
2013 by postal mail in cooperation with Research Institute of Economy, Trade, and Industry(RIETI), Japan. They finally received responses from 227 firms by December 2009 and 185
firms by December 2013.

10

firms’ foreign sales.16*** Figure 3 around here.***When looking at the simple arithmetic average data of All Manufacturingexports, the share of yen invoicing (48.2 percent) is higher than that of U.S. dollar
invoicing (42.1 percent) in the 2009 survey, whereas the share of U.S. dollar invoicing(49.1 percent) becomes higher than that of yen invoicing (41.8 percent) in the 2013 survey.
This evidence suggests that the share of yen invoicing (U.S. dollar invoicing) has been
declining (rising) from 2009 to 2013, which is supported by the data on the invoicecurrency share of “duplicated sample firms” that answered the questionnaires of both2009 and 2013 surveys. The share of invoice currency is very similar between thearithmetic average and duplicated sample firms.
Let us next observe the weighted average data on the invoice currency share. The
share of yen invoicing in terms of weighted average is only 28.7 percent in the 2009
survey, and the share becomes much lower (21.9 percent) in the 2013 survey. On the other
hand, the weighted average share of U.S. dollar invoicing is 54.1 percent in the 2009
survey, and becomes higher (62.1 percent) in the 2013 survey. This evidence suggests thatthe larger the firm size, the higher the share of U.S. dollar invoicing is. Large-size firms
tend to have more subsidiaries in foreign countries than small size firms, and hence thelarge size firms tend to conduct intra-firm trade. In intra-firm trade, Japanese head offices
do not have a strong incentive to pass through exchange rate risk to their own overseas
subsidiaries. Instead, Japanese head offices are likely to choose the importer’s currency
invoicing so that their subsidiaries can avoid taking exchange rate risk. In contrast,
smaller firms with a few or no overseas subsidiaries have a stronger tendency to avoid
exchange rate risk and hence to choose the yen invoiced exports. Thus, the weighted
average share of yen invoicing does reflect the actual invoice currency choice of Japanese
exports.
5.2 Head Offices’ Exports to Advanced Countries and Asian Countries
Figure 4 presents the invoice currency share in head offices’ exports to advanced
countries. Even though all figures are the simple arithmetic average share, the share of
16

The amount of foreign sales is not in practice equal to that of exports. But, as long as using thefirm level data, it is reasonable to use the amount of foreign sales, because it is usually very hard to
obtain the firm-level export amount data.

11

yen invoicing is far smaller than that of foreign currency invoicing. In exports to theUnited States, the U.S. dollar share is 78–80 percent, which indicates that stylized fact 3
does not hold in Japanese exports to the United States. In exports to Euro area, about 50
percent are invoiced in the euro, while 30–35 percent are invoiced in the yen. In exports
to UK, the share of the UK pound is 32.1 percent in the 2009 survey and 29.3 percent in
the 2013 survey, though this information is not reported in Figure 4. The UK pound plus
euro account for 47–48 percent, and the yen accounts for 35–37 percent. Thus, we may
conclude that Japanese exports to advanced countries are mainly invoiced in theimporter’s currency, implying the strong PTM behavior of Japanese firms.
*** Figure 4 around here.***Figure 5 shows the invoice currency share in head offices’ exports to selected
Asian countries. First, according to the 2009 survey, 55 percent are invoiced in the yen inexports to China, and more than 60 percent are invoiced in the yen in exports to Korea,
Taiwan, and Thailand. Second, the share of the yen declined in the 2013 survey. In exports
to China, the yen accounts for 44.6 percent, while the U.S. dollar accounts for 47.1 percent.
In exports to other Asian countries, the share of the U.S. dollar increased to 36–46 percent,and the share of the yen is somewhat higher than that of U.S. dollar. The above
observation suggests an increase in U.S. dollar invoiced exports to Asia, though the shareof the yen is still somewhat higher than that of U.S. dollar invoicing.
*** Figure 5 around here.***Why did the yen-invoicing share fall in Japanese head offices’ exports to Asian
countries? This fall may be due to a decline in business performance of Japanese firms.
For example, up to the mid-2000s, Japanese major electrical machinery makers played alarge role in purchasing intermediate inputs for their final goods production. As long asJapanese major machinery makers are final buyers along production chains, trade ofintermediate input goods tends to be invoiced in the yen. In recent years, however,business performance of Japanese major machinery makers has clearly declined, whileother country’s makers such as Apple and Samsung become a large buyer in Asian supply
chains. Non-Japanese buyers do not have an incentive to use the yen for their tradeinvoicing. Instead, the U.S. dollar tends to be chosen for trade invoicing in Asia,
especially when the U.S. machinery makers are the final buyer along production chainsor when the final export market is the United States.

12

6. Invoice Currency Choice of Japanese Overseas Subsidiaries
6.1 Currency Choice in Intra-firm Trade
Let us next look at the invoice currency choice in exports and imports ofJapanese overseas subsidiaries. Since regional production and supply chains are driven
by active operations of multinational companies, our analysis of subsidiary’s invoicing
choice has important implications for the yen internationalization in the regional
integration process. We rely on the results of questionnaire surveys with Japanese
overseas subsidiaries conducted by RIETI in 2010 and 2014.17 As will be shown anddiscussed below, the yen is used only in Asia-based subsidiary’s trade with Japan, and the
U.S. dollar is largely used in their trade with other countries, even in intra-Asian trade.
Figure 6 presents the invoice currency choice of Asia-based subsidiary’s tradewith Japan. Subsidiaries generally use either the yen or U.S. dollar in trade with Japanesehead offices and group companies, i.e., in intra-firm trade. The share of the yen declined
and that of the U.S. dollar increased from the 2010 survey to the 2014 survey. Morespecifically, in Asia-based subsidiary’s imports from Japan, the yen is used more if
exporters are Japanese head offices. But, in Asia-based subsidiary’s exports to Japan, theyen is used more if importers are group companies, whereas the U.S. dollar is used morethan the yen especially when subsidiaries export to Japan.
*** Figure 6 around here.***Japanese Sogo Shosha (large trading company) is also a trading partner for Asiabased subsidiaries. Sogo Shosha used to play a major role in Japanese exports and imports.
With its own large foreign exchange position for both buying and selling, Sogo Shosha
could manage foreign exchange risk relatively easily and efficiently. Since the U.S. dollar
17Ito, et al. (2011, 2015a, 2015b) conducted the questionnaire survey in cooperation withRIETI, and sent out the questionnaires to 16,020 and 18,932 Japanese subsidiaries in August2010 and November 2014, respectively. 1,479 and 1,640 subsidiaries responded to thequestionnaires conducted in 2010 and 2014, respectively. They obtained the product level
information (i.e., the name of products traded and which currency is used for the product), andcollected the information on who is the trading partner, a group company (including a parent
company) or other non-related company, for each product or intermediate input traded, whichenables the distinction of invoicing choice between intra-firm trade and arm’s length trade.

13has been the most used currency in Japanese exports and imports, Sogo Shosha tends toown a large position of the U.S. dollar. Thus, it is said that the U.S. dollar is generally
used if Japanese firms export or import through Sogo Shosha. However, Figure 6 showsthat the choice of invoice currency in Asia-based subsidiary’s imports from Sogo Shosha
is very similar to that in imports from Japanese head office. In addition, Sogo Shosha
plays only a minor role in Japanese trade in recent years. Although not reported in Figure
6, only one fifth of Asia-based subsidiary’s imports from Japan are through Sogo Shosha,
and three quarters of Asia-based subsidiaries imports from Japan are intra-firm trade.18
Figure 7 shows the invoice currency choice of Asia-based subsidiary’s trade withother countries (excluding Japan). Obviously, the U.S. dollar is typically chosen in theirtrade with other countries, irrespective of whether the trading partner is group companies,
foreign companies, or customers. In both intra-firm trade and arm’s length trade, the U.S.
dollar tends to be used in Asia-based subsidiary’s trade with other countries.
*** Figure 7 around here.***6.2 Implications for the Use of Local Currencies in Asia
Why do Asia-based subsidiaries choose not the local currency but the U.S. dollar
in their exports to other countries excluding Japan? Asian currencies are typicallyconsidered a “minor” currency, because most Asian countries impose strict capital
controls and are reluctant to internationalize their currency. In intra-Asian trade, exporters
and importers tend to avoid using minor currencies and to choose “major” currency suchas the U.S. dollar as an invoice currency.
In Asia-based subsidiary’s trade with Japanese head offices and group companies,
the subsidiaries have two choices, either the yen or the U.S. dollar, as an invoice currency
for their trade with Japan. Suppose an Asia-based subsidiary imports intermediate inputs
from the Japanese head office, and exports its finished products to the head office. If theamounts of exports to Japan are the same as those of imports from Japan, the subsidiarycan avoid exchange rate risk irrespective of the choice of invoice currency, which is called“natural hedge.”
The choice of invoice currency depends on the destination market. If the finaldestination of the subsidiary’s export products is the Japanese market, both the subsidiary18

For further details, please see Ito et al. (2015b). Since the volume of Asia-based subsidiary’s
exports to Japan through Sogo Shosha is very small, we do not report the invoice currency
choice when subsidiary’s export partner is Sogo Shosha.

14and its head office are willing to choose the yen in their intra-firm trade. However, if
Japanese head office re-exports the imported products to the U.S. market, for instance,
the U.S. dollar can be rationally chosen even in intra-firm trade between the Asia-based
subsidiary and the Japanese head office. The reason is that in exports to the United States,
the U.S. dollar is typically chosen, as we discussed in the previous sections.
Thus, as Japanese firms have expanded overseas operations of their subsidiaries,
it becomes more important to consider the choice of invoice currency along production
or supply chains, where the final destination market determines the invoice currency. Aslong as the final destination market is the United States or the final buyer is the U.S.
companies, it would be rational to choose the U.S. dollar as an invoice currency alongproduction and supply chains. Even though intermediate input goods are actively tradedin Asia, the U.S. dollar tends to be chosen in the intra-Asian trade, given the finaldestination market is the United States.

7. Concluding Remarks
By investigating various data at both customs and firm levels, we have revealed
the new evidence of Japanese firms’ invoice currency choice.
1.

Japanese firms tend to choose the U.S. dollar or the importer’s currency in Japanese
exports to advanced countries, irrespective of differences in industry characteristic or
product differentiation.
2. Japanese firms tend to choose the yen in exports to Asian countries, though the shareof the yen is lower than that of the U.S. dollar in recent years.
3. Asia-based subsidiaries tend to use mainly the yen and U.S. dollar in their trade withJapanese head offices and group companies. But, the share of the yen declined inrecent years.
4. In Asia-based subsidiaries’ trade with other countries excluding Japan, the yen israrely used, even in intra-firm trade. The U.S. dollar is dominantly used.
The above findings have policy implications for the future role of the yen and
the Asian local currencies in trade transactions. To facilitate the further use of the yen in
Asia, Japan needs to increase its imports from Asian countries. Indeed, Japan has
expanded its imports of manufacturing goods from Asian countries. But, if most ofimported intermediate inputs are used for final goods production destined for the U.S.

15

market, the U.S. dollar tends to be chosen in Asia. Similarly, although Chinese
government attempts to promote the RMB internationalization, the further use of RMB
would not be expected unless China increased its role of final destination market forneighboring Asian countries. Of course, China’s domestic demand is potentially verylarge, and there should be room for the further use of RMB in Asian trade. From theviewpoint of Japanese firms, however, the use of RMB has not grown significantly. As
shown in Figure 7, the sum of the yen and the U.S. dollar shares increases from the 2010
survey to the 2013 survey in three out of four figures. Only in Figure 7-A2, the sum of
the yen and U.S. dollar shares declines from 83.2 percent to 80.7 percent. Thus, eventhough we present only the evidence from Japanese multinational companies, our findings
have important implications for the invoice currency choice of foreign multinationals
operating in Asia. Despite the rapid economic integration in Asia, foreign multinationals
are less likely to increase the use of RMB significantly in their trade in Asia.

16

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18

Figure 1. Invoice Currency Choice in Japanese Exports(a) To World(b) To the United States

100
90
80
70

100

60
50
40

60

30
20
10
0

30

90
80
70
50
40
20
10

Yen

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

0

U.S. Dollar

Yen

100
90
80
70
60
50
40
30
20
10
0

Yen

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

(d) To Asia

100
90
80
70
60
50
40
30
20
10
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

(c) To EU (EC)

U.S. Dollar

U.S. Dollar

Yen

U.S. Dollar

Notes: The data for 1999 is not available. The September data is used for 1992–97, the March data for
1998, and the second half of the year data for 2000–2016.
Sources: Bank of Japan, Yushutsu Shinyojo Tokei (Export Letter of Credit Statistics); MITI, Yushutsu
Kakunin Tokei (Export Confirmation Statistics); MITI, Yushutsu Hokukosho Tukadate Doko (Export
Currency Invoicing Report); MITI, Yushutsu Kessai Tsukadate Doko Chosa (Export Settlement
Currency Invoicing); the website of the Trade Statistics of Japan, Ministry of Finance.

19

Figure 2. Invoice Currency Choice in Japanese Imports(a) From World(b) From the United States

100
80

100
90
80

70
60

70
60

50

50
40
30

90

40
30
20

20
10

0

0

Yen

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

10

U.S. Dollar

Yen(d) From Asia

100
90
80
70
60
50
40
30
20
10
0

100
90
80
70
60
50
40
30
20
10
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

(c) From EU (EC)Yen

U.S. Dollar

Yen

U.S. Dollar

U.S. Dollar

Notes: The data for 1999 is not available. For imports from the world, the data on yen invoicing is notavailable for 1981, 1982 and 1984, and the data on US dollar invoicing is not available for 1981–85.
The 1986 data is the fiscal year data. The September data is used for 1992–97, the March data for
1998, and the second half of the year data for 2000–2016.
Sources: MITI, Yunyu Shonin Todokede Hokokusho (Import Approval Notification Report); MITI,
Hokokushorei ni Motozuku Hokoku (Report Based on Report Guidance); MITI, Yunyu Hokoku Tokei(Import Report Statistics); MITI, Yunyu Hokukosho Tukadate Doko (Import Currency Invoicing
Report); MITI, Yunyu Kessai Tsukadate Doko Chosa (Import Settlement Currency Invoicing); thewebsite of the Trade Statistics of Japan, Ministry of Finance.

20

Figure 3. Invoice Currency Choice in Japanese Head Offices’ Exports to the World: All
Manufacturing (%)
2009 Survey

2013 Survey
62.1

54.1
48.2

47.6
42.1

49.1

43.9

42.9

41.8

47.6

28.7
21.9

Arithmetic

Weighted
Yen

DuplicatedArithmetic

Weighted

USD

Yen

Duplicated

USD

Note: Weighted average is calculated as average of invoicing currency share of all responded firms
weighted by amount of foreign sales in FY2008 or FY2012 of each firm. “Duplicated” indicates the
sample firms that answered questionnaires of both 2009 and 2013 surveys.
Source: Ito et al. (2016a).

Figure 4. Invoice Currency Choice in Japanese Head Offices’ Exports to Advanced
Countries: All Manufacturing (%)
2009 Survey

2013 Survey

79.8

77.9

51.0
35.3

48.6
35.0

21.8

21.0

18.9

18.5 15.7

13.6

14.2

0.8

0.3
USA

36.6

30.0

Euro Area
Yen

USD

USA

UK
Euro

Euro Area
Yen

USD

UK
Euro

Note: Simple arithmetic average share of invoice currency choice of sample firms.
Source: Ito et al. (2016a).

21

18.1

Figure 5. Invoice Currency Choice in Japanese Head Offices’ Exports to Selected AsianCountries (%)
2009 Survey
69.0

2013 Survey
58.4

62.5

60.1

55.4
43.7
35.3
25.5

China

Korea

TaiwanYen

49.5

44.6 47.1

54.6
45.6
36.3

36.1
30.4

Thailand

China

USD

Korea

TaiwanYen

USD

Note: Simple arithmetic average share of invoice currency choice of sample firms.
Source: Ito et al. (2016a).

22

ThailandFigure 6. Asia-based Subsidiary’s Exports to and Imports from Japan
6-A1. Exports to Japanese Head Office

6-A2. Exports to Group Companies

60.4
46.5

50.8
45.8

50.0

46.0
38.1

31.3

2010 Survey

2010 Survey

2014 Survey
Yen

USD

Yen

6-B1. Imports from Japanese Head Office
58.8

2014 Survey
USD

6-B2. Imports from Group Companies

54.4

51.9
46.5

38.0

39.7

2010 Survey

2014 Survey
Yen

43.9

2010 Survey

2014 Survey
Yen

USD

48.5

USD

6-B3. Imports from Japanese Sogo Shosha
56.9

54.5
38.7

40.0

2010 Survey

2014 Survey
Yen

USD

Note: Simple arithmetic average share of invoice currency choice for major export or import goods.
“Japanese Sogo Shosha” denotes Japanese large trading companies.
Source: Ito et al. (2015b).

23

Figure 7. Asia-based Subsidiary’s Exports to and Imports from Other Countries(Excluding Japan)
7-A1. Exports to Customers

7-A2. Exports to Group Companies
86.0

82.9

77.2

7.5

9.6

2010 Survey

2014 Survey
Yen

6.0

5.0

2010 Survey

2014 Survey

USD

Yen

7-B1. Imports from Foreign Companies
80.5

3.0

1.1

2010 Survey

2014 Survey

USD

7-B2. Imports from Group Companies

88.8

Yen

75.7

85.3

80.3

7.2

3.4

2010 Survey

2014 Survey
Yen

USD

USD

Note: Simple arithmetic average share of invoice currency choice for major export or import goods.
Source: Ito et al. (2015b).

24

Table 1. Share of Invoice Currency in Japanese Export and Import Indices as of December
2015 (%)
Export Price Index

Industry :
JPY

USD

EUR

Import Price Index

Industry :Others

JPY

USD

EUR

OthersFoodstuffs &feedstuffs (75.8)

32.1

60.9

4.2

2.8

Textiles(12.5)

9.5

79.8

10.7

0.0

Textiles(53.5)

56.4

40.1

0.5

2.9

Chemicals & related
products (95.4)

26.4

70.5

1.3

1.8

Chemicals & related
products (83.3)

51.3

36.4

9.8

2.5

Metals & related
products (118.2)

21.9

77.4

0.6

0.0

Metals & related
products (117.1)

11.9

86.1

0.0

2.0

Wood, lumber & related
products (16.5)

4.1

79.7

16.1

0.0

Petroleum, coal &natural gas (305.4)

8.7

91.3

0.0

0.0

General Machinery(192.0)

59.4

27.7

9.6

3.3

General Machinery(53.9)

35.0

59.5

2.7

2.7

Electric & electronic
products (232.9)

36.0

55.6

7.8

0.5

Electric & electronic
products (184.3)

33.7

64.9

0.6

0.9

Transportationequipment (240.6)

29.8

48.3

11.4

10.5

Transportationequipment (34.1)

37.1

47.4

15.5

0.0

Other Products(108.4)

34.0

60.7

3.7

1.5

Other Products(76.1)

23.3

71.7

2.0

3.0

All Industries(1,000.0)

35.9

53.3

7.1

3.6

All Industries(1,000.0)

25.0

71.3

2.4

1.3

Note: Monthly data (as of December 2015). The share (percentage) of invoice (contract) currency ispresented. Figures in parentheses under the name of each industry are weights for all industries(=1,000.0). “General Machinery” denotes “General purpose, production & business oriented
machinery”. “Other Products” denotes “Other primary products & manufactured goods”.
Source: Bank of Japan, Export and Import Price Indices (2010 base).

25

Table 2. Share of Invoice Currency in Japanese Export and Import Indices as of December
1999 (%)
Export Price Index

Industry :
JPY

USD

Import Price Index

Industry :EUR D.Mark Others

JPY

USD

EUR D.Mark Others

Foodstuffs & feed
stuffs (119.4)

20.4

72.4

0.0

0.3

6.9

Textiles(21.3)

9.1

88.2

0.0

2.4

0.4

Textiles(87.5)

22.3

70.6

0.0

0.9

6.1

Chemicals & related
products (76.8)

9.2

90.2

0.0

0.3

0.2

Chemicals & related
products (75.3)

35.2

63.8

0.0

0.0

0.8

Metals & related
products (73.0)

14.8

82.8

0.0

0.0

2.3

Metals & related
products (112.6)

14.7

83.6

0.0

0.0

1.6

Wood, lumber & related
products (51.7)

0.0

100.0

0.0

0.0

0.0

Petroleum, coal &natural gas (178.2)

0.0

100.0

0.0

0.0

0.0

Machinery &equipment (282.6)

24.9

65.4

2.7

2.1

5.0

General machinery &equipment (212.2)

64.1

26.8

4.9

2.1

2.0

Electrical machinery& equipment (354.8)

19.7

74.8

3.4

0.5

1.6

Transportationequipment (178.0)

12.8

52.1

18.5

11.3

5.2

Precision instruments(26.9)

34.6

56.4

8.7

0.0

0.0

Other manufacturingindustry products (57.0)

16.2

78.2

0.0

4.3

1.2

Other primary products &manufactured goods (92.7)

13.8

68.2

0.0

5.2

12.8

All Industries(1,000.0)

26.7

62.4

5.8

3.0

2.1

All Industries(1,000.0)

17.0

76.9

0.8

1.2

4.1

Note: Monthly data (as of December 1999). The share (percentage) of invoice (contract)
currency is presented. Figures in parentheses under the name of each industry are weights for allindustries (=1,000.0).
Source: Bank of Japan, Export and Import Price Indices (1995 base).

26