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2.2.1 Trade in goods and services
1.1. During 2011-13, Japan's ratio of merchandise trade (exports and imports) to GDP averaged 28%. In 2013, the share of exports of goods and services in GDP was 16.9% (15.7% in 2011), while the share of imports was 19.5% (16.4% in 2011). These shares have increased since 2009, with imports rising faster (mainly due to higher fuel imports). Japan continues to be the world's fourth largest exporter and importer of goods (considering the countries of the European Union together and excluding intra-EU trade). In services trade, Japan ranked fifth and fourth among world exporters and importers, respectively.18
1.2. The appreciation in the exchange rate of the yen against major currencies up to 2012 eroded somewhat the international competitiveness of Japanese exports.19 In 2013, exports rose by 9.5% to ¥69.77 trillion, their first increase in three years, but in U.S. dollar terms that represented a decline of 10.5% (US$715.1 billion) given the significant depreciation of the yen against the U.S. dollar (Table 1.1). Imports reached their highest-ever level of ¥81.24 trillion (US$833.2 billion) in 2013. Consequently, Japan had its largest trade deficit (¥11.47 trillion or US$118.1 billion) in 2013.
1.3. Manufactures continue to dominate Japan's exports accounting for 87.6% of total merchandise exports in 2013, slightly down from 88.1% in 2011 (Chart 1.1). During 2011 13, machinery and transport equipment, led by automotive products, remained Japan's most important merchandise export, representing 57.9% of the total in 2013, followed by chemical products with a 10.6% share (Table A1.1).
1.4. Imports of fossil fuels have increased to fill an energy gap since the 2011 Fukushima crisis forced the shutdown of nuclear reactors that once supplied a third of Japan's power (section 4.3.2.1 and Table 4.19). Despite this, the share of primary products in total merchandise imports decreased from 51.4% in 2011 to 50.5% in 2013 mainly due to a reduction in agricultural imports during the period. On the other hand, the share of manufactures went up from 47.1% in 2011 to 48% in 2013, with machinery and transport equipment increasing from 20.8% of total imports in 2011 to 22.6% in 2013 (Table A1.2).
1.5. In 2013, the United States became Japan's largest export market, attracting 18.8% of total exports (up from 15.5% in 2011), followed by China with 18.1% (Chart 1.2). The share of Asia as a whole as an export destination also decreased slightly, but APEC's share increased to 78.4% (from 76.1%). The share of the European Union declined to 10% in 2013 from 11.7% in 2011, owing mainly to the global economic crisis (Table A1.3).
1.6. China's share in Japan's merchandise imports remained relatively stable at around 21-22% over 2011-13, and it remains Japan's largest trading partner. The share of goods imported by Japan from Asia decreased slightly to 50.9% in 2013, while the share of imports from the Middle East continued to rise mainly due to larger fuel imports. On the other hand, the share of imports from the United States decreased from 14.3% to 13.9% during 2011-13, and that of the European Union was stable at 9.4% (Table A1.4).
1.7. Balance of payments data indicate that Japan is a net importer of services with a deficit that averaged US$41.5 billion during 2011-13 (Table 1.2). Net outflows occurred in the form of payments for foreign travel and trade related transport.
Chart 1.1 Product composition of merchandise trade, 2011 and 2013
Source: UNSD, Comtrade database (SITC Rev.3).
Chart 1.2 Direction of merchandise trade, 2011 and 2013
Source: UNSD, Comtrade database.
2.2.2 Foreign direct investment
1.1. Until recently, the government did not consider attracting FDI a high priority, while the local business community in general considered investment by large foreign companies as a threat. Consequently, Japan's inward FDI is far below that of other major developed economies.20 The continued low level of FDI may also be attributed to factors such as the relatively high cost of doing business in Japan21; strict and complicated domestic sector regulations; limited availability of risk capital; regulatory barriers; the difficulty involved in hiring qualified employees; and impediments to mergers and acquisitions.
1.2. Japan aims to double the outstanding amount of FDI by foreign companies to ¥35 trillion by 2020. To achieve this, tax incentives to stimulate investment and private-demand-led growth are also being discussed. A cut in corporate tax (currently 30%) is considered as the initial major step (section 3.3.1.5).22
1.3. Japan is the second-largest outward direct investor in the world, with US$136 billion in 2013, up from US$56 billion in 2010 (Table 1.3), presumably due to low returns in the domestic economy. In particular, Japan has been strengthening its position as a major direct investor in some ASEAN countries where subsidiaries of Japanese companies often play a leading role in sectors such as autos and electronics.23
Table 1.3 Foreign direct investment, 2009-13
(US$ million)
|
2009
|
2010
|
2011
|
2012
|
2013
|
FDI inflows
|
11,938
|
-1,252
|
-1,758
|
1,732
|
2,304
|
FDI inward stock
|
200,144
|
214,880
|
225,787
|
205,361
|
170,929
|
FDI inward stock (% of GDP)
|
3.6
|
3.9
|
3.8
|
3.4
|
3.5
|
FDI outflows
|
74,699
|
56,263
|
107,599
|
122,549
|
135,749
|
FDI outward stock
|
740,927
|
831,076
|
962,790
|
1,054,928
|
992,901
|
FDI outward stock (% of GDP)
|
13.5
|
15.1
|
16.3
|
17.7
|
20.3
|
Source: UNCTAD (2014), World Investment Report 2014, Geneva.
1.4. The United States is now the largest investor in Japan, accounting for 58.9% of inward FDI in 2013, followed by the European Union. The largest recipient of FDI was the electric machinery industry, followed by glass and ceramics, and finance and insurance. FDI is highly concentrated in the metropolitan areas of Greater Tokyo and Kansai; elsewhere the presence of foreign-affiliated companies remains negligible.24
1.5. The United States, the European Union, and Thailand were the major recipients of outward foreign direct investment by Japan in 2013. The main industries/sectors invested in were finance and insurance, communications, mining, and wholesale and retail.
1.6. Since December 2011, Japan has been implementing the "Program for Promoting Japan as an Asian Business Centre and Direct Investment into Japan". Location subsidies, tax incentives, and reduced patent fees for R&D sites are being offered in the context of this programme. According to the authorities, from FY2010 to FY2014 the total subsidy under this programme amounted to ¥4 billion.
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