Junko Shimizu

This paper constructs a new dataset of the industry-specific real effective exchange rate, based on the producer price indices, for Japan, China, and Korea on a monthly basis from January 2001 to February 2013 in order to provide a better indicator for export price competitiveness. By conducting simulation analysis, we found that Korean electrical machinery firms substantially improved their cost competitiveness by lowering their production costs during the Korean won appreciation period, while Japanese firms' large plant investment caused by management misjudgments led to excessive production capacity, which resulted in the deterioration of Japanese export competitiveness. A structural vector autoregression analysis also reveals that industry differences of cost competitiveness as well as nominal exchange rate changes have significant impact on export performances of Japan and Korea.

The purpose of this paper is to identify determinants of currency invoicing among Japanese exporting firms with firm-level data, overcoming the usual limitation of data availability, by interviewing 23 representative Japanese firms in three industriesautomobile, electrical machinery and general machinery. Major findings are as follows. First, invoicing in the importer's currency is prevalent in exports to advanced countries, because most of exports by the globally operating firms are destined for local retail subsidiaries of respective firms, which conforms to the pricing-to-market behaviour discussed in the literature. Second, Japanese firms that export highly differentiated products or have a dominant share in the global market tend to invoice their exporting products in the yen both to advanced countries and to developing countries. Third, although Japanese firms have shifted their production bases to Asian countries, exports from Japan to these Asian production subsidiaries tend to be invoiced in US dollars as long as the final destination market is in the USA. Copyright (c) 2012 John Wiley & Sons, Ltd.