NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exchange Rate Exposure and Risk Management: The case of Japanese Exporting Firms

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu

NBER Working Paper No. 21040
Issued in March 2015
NBER Program(s):International Finance and Macroeconomics

This paper investigates the relationship between the Japanese firms’ exposure to the exchange rate risk and risk management, such as choice of invoicing currency, and financial and operational hedge. The firm’s exposure to the exchange rate risk is estimated by co-movements of the stock prices and exchange rates, following Dominguez (1998) and others. Data on risk management measures—financial and operational hedging, the choice of invoice currency and the price revision strategy (pass-through)—were collected from a questionnaire survey covering all Tokyo Stock Exchange listed firms in 2009. Results show the followings: First, firms with greater dependency on sales in foreign markets have greater foreign exchange exposure. Second, the higher the US dollar invoicing share, the greater is the foreign exchange exposure. But, risk is reduced by both financial and operational hedging. Third, yen invoicing reduces foreign exchange exposure. These findings indicate that Japanese firms use the combination of risk management tools to mitigate the degree of the exchange rate risk.

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Document Object Identifier (DOI): 10.3386/w21040

Published: Takatoshi Ito & Satoshi Koibuchi & Kiyotaka Sato & Junko Shimizu, 2016. "Exchange Rate Exposure and Risk Management: The Case of Japanese Exporting Firms," Journal of the Japanese and International Economies, .

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