Japan's trade surplus (customs-clearance basis) in 1995 fell in dollar terms for the first time in five years, the Ministry of Finance reported. The surplus on a yen-denominated basis began declining in 1993.
The main factors behind the contraction were the appreciation of the yen and increased overseas production by Japanese companies, which caused imports to rise faster than exports. The surplus is expected to continue declining given the move toward deregulation and expanded domestic demand after years of post-bubble stagnation.
An 11% contraction
According to the Ministry of Finance's trade statistics for 1995, exports rose 12% over the preceding year to 443.0 billion dollars and imports shot up 22.3% to 335.9 billion dollars. The trade surplus, or amount that exports exceed imports, came to 107.0 billion dollars, 11.4% less than in 1994 and the first decline in five years. In yen terms it fell for the third straight year to 10.0 trillion yen, a 19.3% drop over the previous year.
Powerful yen figures big
The primary reason for the decline in the surplus was the appreciation of the yen against the dollar. In 1995 the value of the yen rose rapidly, topping 79 yen to the dollar at one point in April. The outcome was a surge in imports, with automobiles rising 40.6% and personal computers and other office equipment jumping 73.8%. The share of finished goods to imports hit another record high of 59.2%.
As the yen grew in strength, Japanese exports valued in dollar terms expanded temporarily, but by the second half of 1995 the volume of imports began to rise at a faster pace, resulting in a steady contraction of the trade surplus.
Shift to overseas production spurs trend
Because of the stronger yen, more Japanese corporations decided to move their factories overseas, contributing to a further drop in exports and rise in imports of finished goods, which ultimately led to a lower surplus. Japanese firms invested particularly heavily in Asia. Figures for fiscal 1994 (April 1994 to March 1995) reveal that Japan's direct investment in this region rose 47.0% over the previous year, with the total second highest only to North America.
Home appliance makers provide one example of the trend toward overseas production. While already producing all black and white TV sets outside Japan, mainly in other Asian countries, manufacturers are now increasingly producing color TVs, with the exception of wide-screen TVs and other models with a high added value, overseas. The reimport of products made by Japanese affiliates abroad has also played a major role in boosting Japan's level of imports.
(The above article, edited by Japan Echo Inc., is based on domestic Japanese news sources. It is offered for reference purposes and does not necessarily represent the policy or views of the Japanese Government.)