321 Part II Our challenges for exploring new global frontiers Chapter 1 Current status and challenges of Japan’s external economic relationships 【Key points of Part II, Chapter 1】 ・The value of receipts in the current account in 2015 came to 126 trillion yen (up 5.1% compared with the same month in the previous year), recovering to the level before the Lehman Shock. While goods exports accounted for around 60% of the total, the center of growth is shifting to investments and services exports. ・The value of goods exports reached 75.6 trillion yen (up 3.45% compared with the previous year), the highest level since the Lehman Shock, but the dependence of exports on “the United States,” “automobiles” and “the Tokai-Koshin region” was prominent due to a lack of sufficient adaptation to changes in the Chinese market. ・ While many major OECD countries are pursuing economic growth through the expansion of exports, the ratio of exports to GDP (export ratio) for Japan is low and the growth in the ratio is also low. ・ In Japan, the ratio of goods and services exports and inward and foreign direct investments to GDP is low compared with in major European countries, which are also facing a slowdown in domestic demand due to a population decline. In order to achieve sustainable growth, it is necessary to raise productivity by adequately capturing overseas demand in addition to acquisition, the employment of highly-skilled professionals and foreign students, and promoting the international movement of workers. Section 1 Challenges for Japan’s current trade and investments This section will provide an overview of trends in Japan’s international balance of payments and examine the characteristics of Japan’s external economic relationships. As for the current account balance, Japan recorded the smallest-ever current account surplus and the largest-ever trade deficit in 2014, but in 2015, the current account surplus grew substantially, to 16.4 trillion yen, led by services exports and primary income. This section will examine changes in the center of growth in Japan’s goods trade, services trade and foreign direct investments by looking at trends concerning these items. 1． Current status of Japan’s external balance First, we will look at trends in Japan’s current account balance in recent years. The value of receipts in Japan’s current account in 2015 increased 5.1% compared with the previous year to 126 trillion yen, surpassing the level before the global economic crisis and reaching the highest- ever level. 1 The value of payments declined 5.5% compared with the previous year to 110 trillion yen, and as a result, the current account balance recorded a surplus of 16.4 trillion yen, representing a significant increase of 12.5 trillion yen from the previous year (Figures II-1-1-1 and II-1-1-2). 1 Balance of payments, on a second preliminary basis (Ministry of Finance)
Transcript
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Part II Our challenges for exploring new global frontiers
Chapter 1 Current status and challenges of Japan’s external economic relationships
【Key points of Part II, Chapter 1】
・The value of receipts in the current account in 2015 came to 126 trillion yen (up 5.1% compared with
the same month in the previous year), recovering to the level before the Lehman Shock. While goods
exports accounted for around 60% of the total, the center of growth is shifting to investments and
services exports.
・The value of goods exports reached 75.6 trillion yen (up 3.45% compared with the previous year), the
highest level since the Lehman Shock, but the dependence of exports on “the United States,”
“automobiles” and “the Tokai-Koshin region” was prominent due to a lack of sufficient adaptation to
changes in the Chinese market.
・ While many major OECD countries are pursuing economic growth through the expansion of
exports, the ratio of exports to GDP (export ratio) for Japan is low and the growth in the ratio is also
low.
・ In Japan, the ratio of goods and services exports and inward and foreign direct investments to GDP
is low compared with in major European countries, which are also facing a slowdown in domestic
demand due to a population decline. In order to achieve sustainable growth, it is necessary to raise
productivity by adequately capturing overseas demand in addition to acquisition, the employment of
highly-skilled professionals and foreign students, and promoting the international movement of
workers.
Section 1 Challenges for Japan’s current trade and investments
This section will provide an overview of trends in Japan’s international balance of payments and
examine the characteristics of Japan’s external economic relationships.
As for the current account balance, Japan recorded the smallest-ever current account surplus and the
largest-ever trade deficit in 2014, but in 2015, the current account surplus grew substantially, to 16.4
trillion yen, led by services exports and primary income. This section will examine changes in the center
of growth in Japan’s goods trade, services trade and foreign direct investments by looking at trends
concerning these items.
1． Current status of Japan’s external balance
First, we will look at trends in Japan’s current account balance in recent years.
The value of receipts in Japan’s current account in 2015 increased 5.1% compared with the previous
year to 126 trillion yen, surpassing the level before the global economic crisis and reaching the highest-
ever level.1 The value of payments declined 5.5% compared with the previous year to 110 trillion yen,
and as a result, the current account balance recorded a surplus of 16.4 trillion yen, representing a
significant increase of 12.5 trillion yen from the previous year (Figures II-1-1-1 and II-1-1-2).
1 Balance of payments, on a second preliminary basis (Ministry of Finance)
322
Figure II-1-1-1 Changes in Japan’s current account balance
Source: "Balance of Payments" (Ministry of Finance and Bank of Japan)
Figure II-1-1-2 Changes in the value of payments in Japan’s current account
Source: "Balance of Payments" (Ministry of Finance and Bank of Japan)
The value of goods exports, which accounted for around 60% of the total receipts, reached 75.3
trillion yen, the highest level since the global economic crisis, but the center of growth is shifting to
primary income (contribution to the growth of 5.1% compared with the previous year: 1.9%), which
63.571.369.7
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Secondary income Primary income Services exports Goods exports
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represents investment income, among other items, and services exports (contribution: 1.9%).2,3 The
current account balance was also affected by trends in the world economy as a whole, such as excess
production capacity and lower resource prices, which were reviewed in Part I (Figure I-1-1-3).
This section looks at the current account balance in recent years while leaving detailed analysis of
individual topics to later sections.4
Figure II-1-1-3 Value of receipts in Japan’s current account and composition of contributions
to the growth (2015)
Source: "Balance of Payments" (Ministry of Finance and Bank of Japan)
(1) Growing dependence of goods exports on the United States and transport equipment
The value of goods exports in 2015 increased 3.45% compared with the previous year to 75.6 trillion
yen (customs-clearance basis5), the highest level since the global economic crisis. However, due to a
2 The contribution by goods exports to the growth of 5.1% in the current account surplus was only 1.0%.
The contribution by secondary income was 0.3%. 3 White Paper on International Economy and Trade 2015 examined Japan’s competitiveness in cross-
border trade from the three viewpoints (“three strengths”)—“competitiveness in exports,” “competitiveness
in attracting people and enterprises” and “competitiveness of Japanese multinationals”—and presented
suggestions for Japan’s external economic policies. For the details of the analysis results, refer to Part 2 of
the same white paper. 4 The component items of Japan’s external balance will be discussed in individual chapters of Part II of this
white paper. Trends in the services account balance and in the balance relating to travel are explained in
Part II, Chapter 2, Section 1 and Part II, Chapter 2, Section 2, respectively. The status of goods trade in
regions across Japan is explained in Part II, Chapter 3, Section 1. 5 There are differences between trade statistics and balance of payments in the value of goods exports and
imports due to differences in the accounting method of expenditures. Specifically, (i) the value of imports in
trade statistics include transportation fares and insurance premiums, while these items are included in the
Value (trillion yen)Contribution to the growth
(total 5.1%)
Secondary income 2.1 0.3%
Primary income 29.3 1.9%
Services exports 19.7 1.9%
Goods exports 75.3 1.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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lack of sufficient adaptation to changes in the Chinese market, the dependence of exports on the United
States as a destination country and on transport equipment as an export item is growing.
The breakdown of the contribution to the average annual growth rate of 2.33% in exports since 2010
shows that by country, the contribution by the United States (1.37%) was by far the largest, eclipsing
the contribution by Asian NIEs (0.13%), the EU (0.10%), China (0.04%) and others (0.68%). By item,
the contribution by transport equipment (0.8%), including automobiles, was very large compared with
the contribution by other items, including machinery (0.3%) and electrical machinery (0.2%). In
particular, the contribution by transportation equipment exported to the United States came to 0.61%,
indicating a heavy concentration of exports on this category (Figures II-1-1-4 and II-1-1-5 and Table 11-
1-1-6).
Figure II-1-1-4 Export partners' shares in 2015 and contribution of countries and regions to
the export growth rate
Source: "Trade Statistics of Japan" (Ministry of Finance)
Figure II-1-1-5 Shares of export items in 2015 and contribution to the export growth rate by
item
Source: "Trade Statistics of Japan" (Ministry of Finance)
services account in the balance of payments. In addition, (ii) in trade statistics, goods cleared through customs
(customs boundary) are accounted for, but in the balance of payments, goods for which ownership is
transferred between residents and non-residents are accounted for, regardless of whether or not they are
cleared through customs (for the details, refer to the website of the Ministry of Finance).
U.S.
20.1%
EU
10.6%
China
17.5%
Asian
NIEs
21.7%
Others
30.1%
Export partners'
shares (2015)
1.37%
0.10%
0.04%
0.13%
0.68%
0.00% 0.50% 1.00% 1.50%
U.S.
EU
China
Asian NIEs
Others
Foodstuff
0.8%
Raw materials
1.5%
Mineral fuels
1.6%
Chemical
products
10.3%Products by
material
12.2%
General
machinery
19.1%Electrical
equipment
17.6%
Transportation
equipment
24.0%
Others
13.0%
Shares of
export items
(2015)
0.1%
0.1%
0.0%
0.2%
0.1%
0.3%
0.2%
0.8%
0.5%
0.0% 0.2% 0.4% 0.6% 0.8% 1.0%
Foodstuff
Mineral fuels
Products by material
Electrical equipment
Others
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Table II-1-1-6 Contribution to the export growth rate by country and item
Contribution
US EU China Asian NIEs Others World
1. Foodstuff 0.01% 0.00% 0.00% 0.02% 0.02% 0.05%
2. Raw materials 0.01% 0.00% 0.01% 0.00% 0.03% 0.05%
3. Mineral fuels 0.00% -0.01% -0.02% 0.03% 0.04% 0.04%
4. Chemical products 0.06% 0.01% 0.10% 0.00% 0.06% 0.24%
5. Products by material 0.10% 0.01% -0.05% -0.13% 0.19% 0.12%
6. General machinery 0.32% 0.03% -0.11% -0.08% 0.16% 0.31%
Average annual growth rate of goods exports (2005-2014)
Average annual growth rate of services exports (2005-2014)
Value of goods
exports Value of services
exports
(Year)
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Figure II-1-1-25 Growth rate of the export of “professional services” of major countries and
contribution ratio by item (2010-2014)
Note: Average annual growth rates from 2010 to 2014. Due to statistical restrictions, the contribution
ratio of “others” of Japan shows the total of the contribution ratios of “specialized and management
consulting” and “technological and trading services.”
Source: OECDStat, Office for National Statistics (UK) and Bank of England
As for the trends in services account balance and the balance relating to travel, refer to Part 2,
Chapter 2.
(4) Summary
As shown above, looking at Japan’s external economic relationships from the viewpoint of the
balance of payments, it is clear that Japan’s goods trade depends on exports to the United States and
exports of transport equipment such as automobiles and that exports to China are heavily tilted towards
machinery, metal and chemicals, indicating the possibility that Japan may fail to capture new demand
for consumer goods. Services account balance depends on the improvement in the balance relating to
travel. This indicates the possibility of increasing dependence on a particular area, and Japan is required
to develop ways of earning income on a global scale in a broad range of sectors.
US UK Germany Japan
R&D Specialized and management consulting
Technological services in such areas as construction, engineering and science, which fall
under technological and trading services
Operational lease Trade-related services
Others Total of professional services
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2．Need to deepen external economic relationships and Japan’s current situation
Various studies have shown that companies’ productivity is closely related to their overseas business
expansion. 9 This paragraph will provide an overview of past studies concerning the relationship
between productivity and overseas business expansion and will also analyze Japan’s current situation
through international comparison in terms of the ratio of trade and foreign direct investment to GDP.
(1) Past debates on the relationship between companies’ overseas business expansion and
productivity
First, according to a new trade theory focusing on heterogeneity between companies within the same
industry, the fixed cost10 necessary for serving the market varies according to the method of doing so
and the cost is from low to high in the order of serving the market through (i) domestic supply, (ii) supply
via exports and (iii) foreign direct investment. Moreover, in order to serve the market through each
method, it is necessary to secure sufficient productivity to earn profits in an amount larger than the fixed
cost. Consequently, the productivity of companies expanding into overseas markets through export or
foreign direct investment is expected to surpass that of companies not expanding into overseas markets
(Figure II-1-1-26)11.
9 Regarding the effects of companies’ expansion into overseas markets in improving productivity, refer to
the detailed analysis in White Paper on International Economy and Trade 2013. 10 Specifically, when starting export, in addition to the fixed cost necessary for doing business
domestically, companies have to bear the fixed cost necessary for export, such as marketing expenditures,
including expenditures on local information gathering activity, and expenditures on systems of sales and
distribution services. When making foreign direct investment, in addition to the fixed cost necessary for
export, companies are presumed to have to bear the heavy cost of establishing and maintaining local
subsidiaries. 11 For example, in relation to changes in the balance of outward foreign direct investment to GDP.
a company with a productivity level of “X” can earn profits in the domestic market but cannot do so in
overseas markets through export or foreign direct investment, and as a result, the company focuses
exclusively on supply to the domestic market without expanding into overseas markets. Meanwhile, a
company with a productivity level of “Y” supplies products to overseas markets in addition to the domestic
market in order to maximize its profits, but opts for export, rather than foreign direct investment, because it
can earn more profits through export. On the other hand, a company with a productivity level of “Z” opts
for foreign direct investment, through which it can earn more profits than through export.
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Figure II-1-1-26 A model for a company’s productivity and overseas expansion
Source: “The Internationalization of Japanese Firms: New Findings Based on Firm-Level Data” by
Wakasugi and Todo (2010) (RIETI Discussion Paper Series 10-P-027)
Meanwhile, it has been pointed out that export not only has the effect of making the economy of
scale work more effectively by capturing foreign demand but also produces the so-called “learning-
from-exporting” by providing opportunities for companies to encounter new knowledge and technology
abroad. The export learning effect refers to raising productivity as a result of striving to improve the
levels of technology and quality and achieving innovation by absorbing technology in response to the
needs in overseas markets.12
The positive effects of economic partnership agreements are also due in large part to a rise in
productivity. According to “an analysis of economic effects of the TPP agreement”13 conducted by the
government task force on the TPP at the Cabinet Secretariat, expansion of trade and investments to be
caused by the TPP will raise productivity and increase the supply of labor and capital stock, leading to
the realization of a truly “strong economy”. Specifically, the analysis pointed out three endogenous
growth mechanisms whereby the TPP drives the economy: (i) expansion of exports and imports → a
rise in trade openness → a rise in productivity; (ii) a rise in productivity → a rise in the real wage rate
12 In relation to the learning effect of foreign direct investment, many Japanese companies have expanded
into Silicon Valley and the surrounding region in order to absorb advanced technologies. The number of
companies which have expanded into the region has reached the highest level since the survey started in
1992. Regarding the status of their specific operations and the challenges identified based on hearings
held there, refer to the analysis in Section 2 of this chapter. 13 Published on December 24, 2015.
346
→ an increase in the supply of labor; (iii) a rise in real income → increases in savings and investments
→ an increase in capital stock → expansion of production capacity.
(2) Weak growth in Japan’s goods and services exports compared with major European countries
Next, we will look at Japan’s present situation through an international comparison in terms of the
ratio of goods and services trade to GDP.
Although the ratio of exports to GDP (export ratio) for Japan has been increasing somewhat in recent
years, it has stayed low compared with the ratios for other major OECD countries in terms of both goods
exports and services exports.
The ratios of goods export to GDP for the ROK and Germany are relatively high at around 40%. In
the case of Germany, the export ratio excluding exports to other EU countries is still higher than the
export ratio for Japan (Figure II- 1-1-27).
Figure II-1-1-27 Ratio of goods exports to GDP for Japan and major Europe countries
Note: Figures for Germany (exports to outside of the EU) are based on data from 2005 onward.
Source: OECD Stats, Global Trade Atlas, WTO Statistics, and UN National Accounts Aggregates
As the analysis in Part I, Chapter 3.2. shows, the ratio of services exports to GDP for Japan is low
compared with the export ratios for major European countries although Japan’s services trade has grown
significantly in recent years. The ratio of services exports to GDP is high for the United Kingdom. As
in the case of Germany’s goods exports, the U.K. services export ratio excluding exports to other EU
countries is still higher than the export ratio for Japan (Figure II-1-1-28).
31%
28
%
18
%
10
%
8%
12
%
7%
41
%
39
%
16
%
15
%
9%
17
%
9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
ROK Germany UK Japan US Germany
(exports
to outside
of the
EU)
UK
(exports
to outside
of the
EU)
2000
2014
347
Figure II-1-1-28 Ratio of services exports to GDP
Note: Figures for Germany (exports to outside of the EU) are based on data from 2005 onward.
Source: OECD Stats, Global Trade Atlas, WTO Statistics, and UN National Accounts Aggregates
While many major OECD countries, including Germany and the ROK, have been pursuing
economic growth through the expansion of exports since 2000, the export ratio for Japan has remained
low (Figure II-1-1-29).
Figure II-1-1-29 Ratio of services exports to GDP
Note: Changes between 2000 and 2014 are shown.
Source: UN National Accounts Aggregates
7.7
%
5.8
%
4.3
%
2.8
%
1.5
%
5.1
%
1.9
%
11.4
%
7.6
%
7.0
%
4.1
%
3.5
%
7.6
%
3.5
%
0%
2%
4%
6%
8%
10%
12%
UK ROK Germany US Japan UK
(exports to
outside of
the EU)
Germany
(exports to
outside of
the EU)
2000
2014
0.0
10.0
20.0
30.0
40.0
50.0
60.0
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Germany Japan ROK UK US
(1,000 dollars)
GD
P p
er c
apit
a
Ratio of exports to GDP (goods and services)
348
(3) Manufacturing industries lagging in foreign direct investment
Next, we will compare the trends in foreign direct investments (FDIs) by Japan and other major
countries.
A comparison with other major countries in terms of the ratio of the balance of foreign direct
investments to GDP for other major countries shows that although the ratio has grown rapidly since the
1990s for the Western developed countries in terms of both inward and outward FDIs, the growth rate
has been low for Japan in terms of both inward and outward FDIs, although outward FDIs have grown
somewhat (Figure II-1-1-30).
Figure II-1-1-30 Ratio of inward and outward foreign direct investments to GDP for major
countries
Source: “Statistics on Direct Investments in Major Countries” (Institute for International Trade and
Investment)
A comparison between Japan and other major countries in terms of the balance of outward FDIs by
industry shows that manufacturing industries’ FDI ratio to GDP for Japan is 13.4% (2013), mostly
similar to the ratios for other major countries (3.7% in the United States, 9.7% in the United Kingdom,
13.0% in France and 11.3% for Germany). However, non-manufacturing industries’ FDI ratio for Japan
is very low at 15.6% (2013) (39.1% in the United Kingdom, 32.5% in France, 32.0% in Germany and
22.8% in the United States). As in the case of services trade that was mentioned earlier, Japanese
nonmanufacturing industries’ overseas expansion is at a low level compared with their foreign
