White Paper on International Economy and Trade 2014 (Part 1)
Japan and the world shifting to new growth models
Japan and the world shifting to new growth models
Policy Planning and Research Office
Trade Policy Bureau
Ministry of Economy, Trade and Industry
The White Paper on International Economy and Trade, which has been published since 1949, is an annual report on Japan's external economic policy. The 2014 report marks the 66th publication.
Recognizing the increasing importance of structural reforms and growth strategies in achieving stable world economic growth, this year's report analyzes growth strategies, structural reforms and changes in economic structure in Europe, the U.S., China, ASEAN and other major economies. It also examines the situations of trade and investment in Japan and East Asia. Here we outline the situations of trade and investment in Japan and East Asia and Japan's global outreach strategy.
Trade and investment trends in Japan
Japan recorded its largest-ever trade deficit in 2013-a substantial 11.5 trillion yen. While exports grew for the first time in three years, imports also increased for the fourth consecutive year due to such factors as strong domestic demand and the rise in fossil fuel imports for thermal power generation.
Looking at export trends in 2013, with the yen depreciating since November 2012, it has been noted that export volume growth has remained weak due to slowing demand in the emerging economies, as well as companies-with some exceptions-not significantly revising their prices downward even after yen depreciation.
This trend of export price-setting behavior among companies emerges clearly from the METI survey conducted in January 2014. With the yen moving lower since November 2012, a number of companies noted that their export volumes have increased because (1) price competitiveness has increased in local currencies despite export prices remaining unchanged on a yen basis, or (2) prices in local currencies have been reduced. On the other hand, many companies are not engaging in price revision, with more than 80 percent of survey respondents indicating that they currently have no plans to lower prices. Reasons that companies gave for their caution over revising prices included "lowering prices will not result in higher sales" and "we revise prices when product models change, but have no plans to do so at present". Such price-setting policies appear to have been behind the weak growth in export volumes in 2013 (Fig. 1).
Figure 1: Reasons export price reductions are not planned (229KB)
Next we turn to changes in Japan's trade structure in the last several years. Examining the trade balance by product group in 2005, 2010 and 2013, the deficit for fossil fuels has soared, while the surplus has been shrinking in such categories as general machinery and electrical machinery (Fig. 2).
Figure 2: Comparison of trade balance by key product group (2005, 2010, 2013) (208KB)
Now we will use the trade specialization coefficient to examine trade structure changes from the perspective of changes in export competitiveness. The trade specialization coefficient is an index which indicates the extent to which each industry is specializing in exports, the equation for which is trade surplus (exports minus imports) / total trade value (exports plus imports). The White Paper focuses on the trade specialization coefficient and the rate of export growth year-on-year for Japan, Germany, Korea and China in relation to automobiles (HS803), automobile components (HS8708), general machinery (HS80), electrical machinery (HS85), precision machinery (HS90), and iron and steel (HS72). Here we take the examples of general machinery (Fig. 3) and electrical machinery (Fig. 4). Looking at trends over 2000, 2005, 2010 and 2013, China's trade specialization coefficient for general machinery has become positive, primarily due to increased computer exports. China's trade specialization coefficient is also positive for electrical machinery, and exports too have skyrocketed. These figures suggest that Japan's relative advantagein terms of export competitiveness is declining, due in part to the result of Chinese and Korean growth.
Finally, to briefly outline Japan's current account balance, in 2013 the surplus reached a record low since 1985. While the service deficit shrank and the primary income surplus improved, the trade deficit greatly increased . The increase in royalties on intellectual property rights, which are part of the service account, as well as in the primary income account (formerly the income balance) was due to the growth in Japan's overseas business activities.
Figure 3: Trade specialization coefficient and rate of export growth (Y-Y) for Japan, Germany, Korea and China for general machinery (220KB)
Figure 4: Trade specialization coefficient and rate of export growth (Y-Y) for Japan, Germany, Korea and China for electrical machinery (218KB)
In the next article, we examine the deepening of trade and investment in Asia, the relationship between Japanese companies and East Asia, and Japan's global outreach strategy.
(original article : Japanese)