Invoicing Currency and Exchange Rate Pass-Through in Japanese Imports: A Panel VAR Analysis

This study utilizes the granular Japanese customs data from 2014 to 2020 to examine the exchange rate pass-through (ERPT) to Japanese import prices. It mainly focuses on the impact of the invoicing currency choice on ERPT. The ERPT elasticity in products invoiced in the exporter’s currency is greater than those invoiced in yen. In the full sample analysis, the ERPT elasticity was 0.75 for products invoiced in the exporter’s currency, compared to about 0.19 for yen-invoiced products. We find the same tendency for imports from two Asian powerhouses: China and Thailand. There is no significant difference in the ERPT elasticity between products invoiced in the exporter’s currency and those invoiced in a third currency (i.e., a currency other than yen or the exporter’s currency). In addition, an asymmetric pass-through is found, namely the ERPT during the appreciation phase of the yen is higher than during the depreciation phase. This finding is interpreted that foreign exporters strengthen their pricing-to-market behavior during the yen depreciation phase to maintain their market share.