Protecting Subsidiaries from Exchange Rate Risk:The Role of Ownership Ratios in Invoice Currency Choices

Uraku Yoshimoto, Kiyotaka Sato, Taiyo Yoshimi, Takatoshi Ito, Junko Shimizu and Yushi Yoshida
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Uraku Yoshimoto: Faculty of International Social Sciences, Yokohama National University, Japan
Kiyotaka Sato: Faculty of International Social Sciences, Yokohama National University, Japan
Taiyo Yoshimi: Faculty of Economics, Chuo University, Japan
Takatoshi Ito: School of International Relations and Public Policy, Columbia
Junko Shimizu: Faculty of Economics, Gakushuin University, Japan
Yushi Yoshida: Faculty of Economics, Shiga University, Japan

Discussion papers from Policy Research Institute, Ministry of Finance Japan

Abstract: This study examines the determinants of invoice currency choice in Japanese export transactions to Thailand, utilizing granular data from Japan Customs. A key contribution of this study is its examination of how the ownership ratio (OSR) of Thai importers influences invoice currency choice in exports by Japanese complete car manufacturers and their subsidiaries. The empirical analysis reveals that a higher OSR of Thai importers is associated with a decreased likelihood of yen-denominated transactions. Furthermore, this study explores how invoice currency preferences diverge across different trade channels, including intra-firm trade. The findings reveal distinct patterns: parent companies predominantly prefer U.S. dollar-invoiced exports, whereas domestic subsidiaries—constrained by their limited capacity to manage exchange rate risks—exhibit a strong preference for yen-invoiced exports. These results underscore the significant differences in invoice currency strategies across trade channels. Notably, the analysis suggests that parent companies strategically select invoice currencies—whether yen or foreign currencies—as part of a broader effort to protect their foreign subsidiaries from exchange rate volatility, reflecting a deliberate approach to centralized risk management.

Keywords: Ownership ratio; Invoice currency; Intra-firm trade; Overseas subsidiaries; Japan Customs transaction data (search for similar items in EconPapers)
JEL-codes: F14 F23 F31 (search for similar items in EconPapers)
Pages: 28 pages
New Economics Papers: this item is included in nep-mon
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https://www.mof.go.jp/pri/research/discussion_paper/ron385.pdf First version, 2016 (application/pdf)

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