No. 18 — May 5, 2000

 

Weekly Review

RISING OIL PRICES TRIM JAPAN'S TRADE SURPLUS
--- by Douglas Ostrom

Japan's customs-clearance trade surplus fell for the fourth consecutive quarter in the January-March 2000 period, contracting 6.1 percent from the same time last year (see Table 1). The drop lead to an unusually wide range of interpretations — most of which were off base. Higher oil prices were the main factor behind the decline, as reflected by the fact that the shrinkage in the trade surplus was one-third as large as the jump in oil imports. In other words, had the value of crude purchases not risen and had other factors remained the same, the huge gap between Japan's exports and imports would have widened significantly in the first quarter.
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Table 1: Japan's Total Trade, 1995-99

(in billions of yen)

Exports
(f.o.b.)

Change Over Year-Earlier Period

Imports
(c.i.f.)

Change Over Year-Earlier Period

Trade Balance

1995

¥41,531

2.6%

¥31,549

12.3%

¥9,982

1996

44,731

7.7

37,993

20.4

6,738

1997

50,938

13.9

40,956

7.8

9,982

1998

50,645

-0.6

36,654

-10.5

13,991

1999

47,557

-6.1

35,204

-4.0

12,353

1995:

I

10,224

2.5

7,533

13.3

2,691

II

9,862

0.1

7,357

7.5

2,505

III

10,269

1.3

7,808

9.5

2,461

IV

11,174

6.1

8,850

18.3

2,324

1996:

I

10,763

5.3

8,937

18.6

1,825

II

10,714

8.6

9,438

28.3

1,276

III

11,155

8.6

9,530

22.0

1,625

IV

12,100

8.3

10,089

14.0

2,011

1997:

I

12,072

12.2

10,616

18.8

1,456

II

12,649

18.1

10,151

7.6

2,499

III

12,641

13.3

10,019

5.1

2,622

IV

13,576

12.2

10,171

0.8

3,405

1998:

I

12,544

3.9

9,638

-9.2

2,906

II

12,735

0.7

9,078

-10.6

3,657

III

13,173

4.2

9,425

-5.9

3,748

IV

12,193

-10.2

8,523

-16.2

3,670

1999:

I

11,351

-9.5

8,344

-13.3

3,007

II

11,681

-8.3

8,631

-5.0

3,050

III

12,230

-7.2

8,894

-5.7

3,336

IV

12,299

0.8

9,343

9.6

2,956

2000:

I (p)

12,350

8.8

9,541

14.1

2,809

The 14.1 percent jump in the value of imports over the winter raised eyebrows because it suggested to some analysts that the economy had developed an addiction to foreign goods. To other experts, however, the surge was encouraging evidence that Japan's recovery was on track.

Notably, the value of the yen rose 8.9 percent during the first quarter. That development alone would have meant lower prices for imports, in turn suggesting that the expansion in the volume of purchases from abroad might have been even greater than indicated by the yen-based numbers. Still, pessimists and optimists alike overlooked the impact of higher oil prices, which more than doubled and, as a result, lifted overall import prices 3.1 percent despite the stronger yen. The net result, though, was a still-impressive 10.6 percent gain in import volume during the January-March period.

Purchases from the United States fell 11.4 percent, however, and were the main reason for the big jump in the bilateral imbalance (see Table 2). In contrast, imports from Asia soared 23.2 percent. While part of that growth was triggered by a 30.9 percent increase in shipments from Indonesia, Japan's only important oil supplier outside the Middle East, arrivals from other Asian countries also were up sharply. Two-way trade with the recovering South Korean economy surged, for example. Exports to Japan's nearest neighbor jumped 45.3 percent from the first quarter of 1999, outpacing the robust growth of imports, which climbed 35.1 percent.
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Table 2: Japan's Trade with the United States, 1995-00

(in billions of yen)

Exports (f.o.b.)

Change Over Year-Earlier Period

Imports (c.i.f.)

Change Over Year-Earlier Period

Trade Balance

1995

¥11,333

-5.8%

¥7,076

10.1%

¥4,257

1996

12,177

7.4

8,631

22.0

3,546

1997

14,169

16.4

9,149

6.0

5,020

1998

15,470

9.2

8,778

-4.1

6,692

1999

14,605

-5.6

7,640

-13.0

6,965

1995:

I

2,938

-1.6

1,662

0.7

1,276

II

2,691

-6.9

1,665

2.4

1,026

III

2,770

-9.7

1,735

9.5

1,035

IV

2,934

-5.0

2,015

28.8

919

1996:

I

2,959

0.7

2,090

25.8

869

II

2,859

6.2

2,226

33.7

633

III

3,081

11.2

2,154

24.1

927

IV

3,279

11.7

2,161

7.3

1,118

1997:

I

3,456

16.8

2,374

13.6

1,081

II

3,462

21.1

2,312

3.9

1,150

III

3,494

13.4

2,221

3.1

1,273

IV

3,757

14.6

2,242

3.7

1,515

1998:

I

3,830

10.8

2,353

-0.9

1,477

II

3,858

11.4

2,265

-2.0

1,593

III

4,087

17.0

2,259

1.7

1,828

IV

3,695

-1.7

1,901

-15.2

1,794

1999:

I

3,517

-8.2

2,070

-12.1

1,447

II

3,652

-5.3

1,906

-5.8

1,746

III

3,801

-7.0

1,787

-20.9

2,014

IV

3,635

-1.7

1,877

-1.3

1,757

2000:

I (p)

3,685

4.8

1,833

-11.4

1,852

The January-March trade statistics underscore the renewed importance of Asia to Japan in the aftermath of the region's 1997-99 financial and economic crisis. In the latest quarter, Asia, including the People's Republic of China, bought 38.7 percent of Japan's exports and supplied 40.6 percent of its imports, far ahead of the 29.8 percent share for U.S.-bound exports and the 19.2 percent cut for American-made imports. While the United States remains Japan's largest trading partner on both the export and the import side, China now is a rival supplier, accounting for 13.6 percent of Japan's imports in the first quarter.

The latest quarterly trade numbers contain little, if any, evidence that the relatively strong yen of the past year or so is having a negative impact on Japan's apparently still-struggling economy. Export volume rose 13.1 percent from the January-March 1999 quarter, which implies that the price-adjusted trade surplus continues to go up despite the widespread Japanese fear that the appreciation of the yen would curtail overseas sales. While the expansion in the import volume generally is welcome as a sign of stronger domestic demand in general, the surge in exports in the face of the yen's run-up in value points to the persistence of rapid growth among Japan's key trading partners, the United States in particular.

A reasonably high proportion of those economic gains that Japan has managed to achieve may, in fact, represent spillover from more robust economies in North America, Europe and Asia. If so, the stronger yen may not reflect improving conditions in Japan, as many American analysts assume, or Washington's failure to support the Japanese currency at some reasonable level, as some officials in Tokyo might argue, but, rather, healthy demand abroad for Japanese goods and services. In this interpretation, the world currency market is driven by the demand for exports rather than by capital flows, the usual assumption. The corollary is that Japan ends up with a more expensive currency and export growth that probably accounted for much of whatever overall economic expansion occurred over the past 12 months.

While this explanation appears to suggest an export-driven economy — something for which Japan often has been faulted — Tokyo likely will avoid more lectures from Washington for at least two reasons. First, as noted, the surge in exports is not a consequence of a deliberately engineered weak yen, as critics once charged; instead, it reflects strong demand in big importing countries for made-in-Japan products. Second, with the U.S. economy expanding at an incredible rate quarter after quarter, Clinton administration policymakers have turned their attention to other issues.

Should the high-flying American economy suddenly lose altitude, the issue of the fast-widening transpacific trade gap might move to the front burner — but then again, maybe not. Washington increasingly seems to find it hard to imagine that Japan, with its near-decade-long experience of subpar economic performance, represents much of a threat to U.S. prosperity, surging exports notwithstanding.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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