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Trade Balance
China Leads in Exports to Japan
In terms of both exports and imports, Japan was the world's
third largest trading country in 2001, following the United
States and Germany. The country's trade balance was in the red
through to the mid-1960s but has generally been in the black
since then.
Lacking in natural resources, Japan maintains a traditional
industrial and trading pattern of importing raw materials and
energy resources for use in the manufacture of export products.
As a consequence, the share of manufactured products among Japan's
total imports has been low in the past, giving rise to much
criticism from abroad. The share of such imports, however, has
been growing since the 1990s, as imports of computer equipment
and textile products from Asia have sharply increased.
Japan's trade surplus in 2002 expanded 50.5% over the previous
year to ¥9,881 billion, the first increase in four years
and the largest growth since 1984, partly in reaction to the
global IT slump of the previous year.(*1) By region, Japan's
exports to China surged 32.3% year-on-year to ¥4,980 billion
in 2002 partly due to the country's entry into the World Trade
Organization in December 2001.(*2) Exports of automobiles and
other items to China expanded. General machinery and electronic
parts, such as semiconductors, to Chinese companies as well
as Japanese firms with bases in China, also increased dramatically.
Imports from China topped those from the United States for the
first time since 1961, when comparable data were first available,
making China one of Japan's largest trading partners.(*3)
Japan's trade surplus with the US in 2002 jumped 8.5% from a
year earlier to ¥7,636 billion, the first increase in two
years. Meanwhile, the surplus with the European Union dropped
9.1% to ¥2,180 billion in the fourth year of decrease in
a row.
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Trade Policy
Focus on FTA
With the breakdown of talks in the new round of multilateral
trade negotiations at the World Trade Organization ministerial
conference held in Mexico in September 2003(*1), the Japanese
government is leaning toward an emphasis of bilateral free trade
agreements (FTA), away from its traditional pursuit of multilateral
trade liberalization within WTO framework.(*2) As the number
of countries joining the WTO talks increased during the 1990s,
it has become more difficult and time-consuming to form a basis
for expanding trade among many countries, especially between
industrialized and developing countries. As a consequence, the
number of FTA concluded between countries and regions increased
sharply, from 7 in the 1980s to 91 in the 1990s.(*3)
There are, however, formidable hurdles to overcome before the
Japanese government can enjoy the fruits of FTA with its major
trading partners regarding structural reforms of domestic industries,
in particular agriculture. Japan's only FTA as of January 2004
is with Singapore, a country with which there is almost no trade
in farm products.(*4) The FTA talks between Japan and Mexico,
involving sensitive agricultural markets, reached a stalemate
as the two nations failed to overcome differences over tariffs
on certain farm products, such as pork.(*5)
In December 2003, the Japanese government agreed with three
member countries of the Association of Southeast Asian Nations
(ASEAN)—Thailand, the Philippines and Malaysia—to
start negotiations toward signing separate FTAs, a move Tokyo
hopes will eventually lead to the creation of a free trade zone
in the East Asian region.(*6) The Japanese government began
talks with the Republic of Korea (*7) in late December 2003
and with Malaysia (*8) in January 2004. Negotiation with the
Philippines (*9) is also expected to start early in 2004. To
avoid impasse and ensure progress in these trade agreements,
the Japanese government needs to recast its farm policy radically,
but in such a way that eliminating or cutting tariffs sharply
in farm imports would not upset domestic farmers.
Foreign Direct Investment
¥2.18 trillion invested in Japan
According to the Ministry of Finance, direct investment overseas
by Japanese firms grew 10.7% over the previous year to
¥4.41 trillion in fiscal year 2002, the first increase in
three years. The turnaround is seen as a sign that Japanese
companies, many of which have been forced to scale down or withdraw
from certain operations amid the prolonged economic
slump, have at last begun to make fresh investment overseas.
Direct investment in the US and Europe rose 23.8% and 38.3%,
respectively. Direct investment in the fast-growing Chinese
market also expanded 19.1%. On the other hand, direct investment
in Japan by foreign companies edged up 0.4% to ¥2.18 trillion
in fiscal 2002.(*10) But foreign firms spent 9% less on purchasing
equity stakes in Japanese companies, dropping for the second
year in a row, indicating that their M&A activity here has
run its course.
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