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Economy, Foreign Trade and Investment

yen exchange rate, Asian crisis, Japanese exports, trade surplus, Japanese firms

In 2000 Japanís merchandise exports totaled $479 billion, the third highest national figure after the United States and Germany. Its imports totaled $380 billion. As a share of total world trade, Japanese exports accounted for 7.8 percent of global exports, and its imports accounted for 6.5 percent of global imports in 1996. As a percentage of the countryís GDP, exports amounted to 8.9 percent and imports 7.6 percent.

Japanís main trading partners are the United States, East and Southeast Asian countries, and the countries of the European Union (particularly Germany and the United Kingdom). In 1996 the United States purchased 27 percent of Japanís exports and supplied 23 percent of its imports.

In general Japan exports manufactured goods and imports raw materials, food, and manufactured goods; manufactures accounted for 94 percent of exports compared with 57 percent of imports in 1999. Japanís leading exports include general and electrical machinery, automobiles, chemicals, steel, and textiles. Chief imports include machinery and equipment, food, fuels, chemicals, ores and metals, and agricultural raw materials.

As of the late 1990s, Japan had run a trade surplus (meaning its exports exceeded its imports) every year since 1965, with the exception of the oil shock years. In the 1980s and 1990s the size of the surplus fluctuated up and down depending on the yen exchange rate and the relative growth rates of Japan and its trading partners. The highest surplus was 4 percent of Japanís GDP in 1986; the lowest was 0.5 percent in 1996. In 1998 it was about 2 percent of GDP.

Japanese firms used the trade surpluses to invest heavily in overseas stocks, bonds, bank loans, real estate, and new business ventures. Beginning in the 1980s, many Japanese companies established production facilities overseas, due to both the increased value of the yen and growing resistance to Japanese exports from Japanís trading partners. Manufacturing or assembling goods at facilities in foreign countries gave Japanese companies several advantages. The companies were able to meet the foreign countriesí domestic content requirements (which mandate that a certain percentage of an item be produced within the foreign country), avoid quotas and other restrictions, and in some cases, save money on land or labor costs. Japanese firms now produce more cars and consumer electronics outside Japan than in Japan.

In 1997 the value of several Southeast Asian currencies fell sharply, triggering an economic crisis in the region that affected Japanís trade balance. Japanís exports to Southeast Asian countries fell significantly, while its imports from these countries fell less dramatically. Furthermore, as the Asian crisis developed, many of Japanís overseas investments proved unprofitable. Even though Japanís exports to other destinations continued to grow, the fall in exports to Asia meant that, on a global, price-adjusted basis, Japanís exports in the fall of 1998 were down 2 percent from the year before. At the same time, Japanís ongoing recession caused its imports to drop 7 percent. The net result was that Japanís global trade surplus rose, but only because imports were falling even faster than exports. Therefore, the rising trade surplus did not add any new economic vigor; it simply reflected economic weakness.

Japan is an active member of the International Monetary Fund (IMF), the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), and the Asia Pacific Economic Community (APEC).



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