Research On The Operational Hedging Policies In Japanese MNCs’ Foreign Exchange Risk Management

The exchange rate of the RMB against the U.S. dollar is rising to record highs since the start of RMB exchange rate system reform in2005. This reform exposes Chinese export-dependent enterprises to high exchange rate risk environment. This is a great challenge to the competitiveness of Chinese enterprises. Faced with such a situation, trade enterprises only use financial hedging strategies have been difficult to avoid the risk. But the studies of exchange rate risk management primarily focus on financial hedging strategies until now. Little studies shed light on the important of operational hedging for MNCs. This paper contributes to the literature in several ways by analyzing operational hedging of Japanese MNCs and providing new ideas and policy recommendations to Chinese enterprises in exchange rate risk management.This paper proceeds as follows. In the first section, it introduces the research background and significance on the importance of operational hedges in the management of exchange rate risk. After that, it describes a number of studies on this issue and the methods and innovations of this article. The second section is divided into two parts. It describes the reasons why Japanese MNCs use operational hedging strategies and the main means they use. Be summed up, there are four reasons: the role of Japanese MNCs in international trade lead to the use of multiple currencies, the low status of yen in international trade, financial hedging strategies are imperfect and the easy use of operational hedging strategies based on large-scale and multi-branch. The third section introduces the current situation of Chinese MNCs’ exchange rate risk management and the applicability of Japanese MNCs’ experience. The results showed that: with significant growth of international trade and direct investment Chinese MNCs are expose to huge exchange rate risk but they don’t manage it well.Because of China and Japan both use the manufacturing export-led development form and currency appreciation under huge trade surplus and foreign exchange reserves, Japanese MNCs’ experiences are applicable to Chinese MNCs. In the forth section, it summarizes the experience of Japanese MNCs and give four-point suggestions to Chinese MNCs’ exchange rate risk management.