The international use of the Japanese yen: The case of Japan's trade with East Asia

The noteworthy result of the empirical test is that Japanese exporting firms tend to stabilise the export price even in their exports of ICs to East Asia, which is likely to lower not only yen-invoiced exports of the electric machinery industry to East Asia but also overall yen-invoiced exports to East Asia. The trade invoicing pattern of the electric machinery industry, especially semiconductors and ICs, is particularly important because the recent increase in Japan's trade with East Asia is mainly attributed to the expansion of investment and trade in this industry. Given such an invoicing practice in this industry, it is hard to expect further use of the yen in Japan's trade with East Asia. The remainder of this paper is organised as follows. Section 2 reviews the theory of a trade invoice currency and compares trade invoicing patterns of Japan's foreign trade with those of other advanced industrial countries. Section 3 investigates the trade invoicing patterns of Japan's exports and imports by commodity and region using the MITI data. Section 4 empirically examines how the PTM theory can explain the trade invoicing patterns of Japanese exporting firms. Section 5 considers the investment-trade nexus between Japan and East Asia and discusses the conditions for further internationalization of the yen in East Asia. Section 6 presents some concluding remarks.