japan's bop analysis
JAPAN’S BOP ANALYSIS
By Aslı AKDAŞ
GENERAL ANALYSIS ABOUT THE ECONOMY:
The general public tends to know little about the balance of payments (BOP), recognizing only that more exports mean a surplus while more imports create a deficit. However, the BOP reflects a country’s economy and industrial structure like a mirror. And Japan’s balance of payments has undergone considerable change over the last 20 years.
First, with very few exceptions, Japan’s trade balance has remained consistently in the black for the last 40 years. Surplus increased in the 1980s, and because a surplus for Japan means a deficit for trading partners, serious trade friction problems arose with the US and Europe. The trade balance is the difference between exports and imports of goods, and Japan’s massive surplus over that period was the fruit of exports of consumer durables such as cars and consumer electronics. The 1980s marked the height of Japan’s manufacturing.
However, having peaked around 1990, Japan’s trade surplus subsequently experienced a gradual decline as the manufacturing industry stopped exporting from Japan and instead shifted its plants offshore to engage in local production. The direct cause for the shift was the need to avoid trade friction, but producing locally soon opened manufacturers’ eyes to the merits of manufacturing close to local consumers. Yen appreciation as of the late 1980s too accelerated this shift to local production.
Japan’simports depends on oil and most other resources and the manufacturing industry tends to be viewed as the key player in paying for these resources. But as we discussed before, Japan was experiencing a steady shift toward offshore manufacturing and this situation caused noticeable decreasing on domestic manufacturing.
In the case of the newly developing Asian economies in particular, manufacturers simply cannot export finished products from Japan when high domestic wages make it impossible to make a profit. Fortunately,
By Aslı AKDAŞ
GENERAL ANALYSIS ABOUT THE ECONOMY:
The general public tends to know little about the balance of payments (BOP), recognizing only that more exports mean a surplus while more imports create a deficit. However, the BOP reflects a country’s economy and industrial structure like a mirror. And Japan’s balance of payments has undergone considerable change over the last 20 years.
First, with very few exceptions, Japan’s trade balance has remained consistently in the black for the last 40 years. Surplus increased in the 1980s, and because a surplus for Japan means a deficit for trading partners, serious trade friction problems arose with the US and Europe. The trade balance is the difference between exports and imports of goods, and Japan’s massive surplus over that period was the fruit of exports of consumer durables such as cars and consumer electronics. The 1980s marked the height of Japan’s manufacturing.
However, having peaked around 1990, Japan’s trade surplus subsequently experienced a gradual decline as the manufacturing industry stopped exporting from Japan and instead shifted its plants offshore to engage in local production. The direct cause for the shift was the need to avoid trade friction, but producing locally soon opened manufacturers’ eyes to the merits of manufacturing close to local consumers. Yen appreciation as of the late 1980s too accelerated this shift to local production.
Japan’simports depends on oil and most other resources and the manufacturing industry tends to be viewed as the key player in paying for these resources. But as we discussed before, Japan was experiencing a steady shift toward offshore manufacturing and this situation caused noticeable decreasing on domestic manufacturing.
In the case of the newly developing Asian economies in particular, manufacturers simply cannot export finished products from Japan when high domestic wages make it impossible to make a profit. Fortunately,