TRADE-JAPAN: Sluggish Overseas Demand Cripples Exports

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Oct 25 2001 (IPS) - Japan’s much touted trade surplus — believed to be the highest in the world — is shrinking fast, and the once ferocious exporter faces the prospect of becoming an importer, say analysts here.

Furthermore, they say, it is Asia that stands to benefit the most from this new trend.

A report released by the Finance Ministry this week showed that Japan’s trade surplus in the first half of the current fiscal year ending in March 2002 fell by 43.1 percent to 3.3 trillion yen (about 24 billion U.S. dollars) from its year-ago level.

That represents a drop for the fifth straight half-year period since the first half of 1999. The rate of decline is the steepest since 1978, the ministry says.

According to the report, exports in the April-September period fell by 6.1 percent to 24.33 trillion yen (240 billion dollars), mainly due to a substantial drop in exports of information technology-related products amid weak global demand.

This was the first decline in four half-year periods, while imports in the same period rose year-on-year by 4.6 percent to 21 trillion yen (200 billion dollars), the fourth straight half-year period increase.

By region, Japan’s trade surplus with Asia plunged by 59.5 percent to almost one trillion yen or eight billion dollars, the second straight half-year period decline.

Japan’s trade surplus with the United States, its biggest market, fell 6.5 percent to 3.5 trillion yen, the first decline in two half- year periods as exports of semiconductors and communication equipment to the country declined.

The scenario looks even grimmer in the aftermath of the Sep. 11 terror attacks in the United States, which have curbed consumer spending and further investments.

While rising imports from Asia have contributed to shrinking trade surplus, the continuing fall in the surplus is also due to a decline in Japanese exports of electronic products to the region.

The situation has got so bad that Nomura Research Institute said in a report that Japan by 2003 will have a trade deficit, similar to the situation in the country in the sixties before its economic miracle.

Kenichi Nagura of Norinchukan Research Institute points out that Japan is fast becoming an importing country.

“The Japanese economy was once led by its strong export industry. That has changed completely and in the next decade we would see our economy to be like the United States,” he said.

A bulk of the merchandise sold in the American market is produced in Asia, Latin America and Africa.

Nagura reports this is because Japanese companies are investing heavily in Asia to become globally competitive. “In a bid to remain competitive the trend to invest in cheaper Asia is relentless,” he explained.

The Japan External Trade Organisation, a quasi-government trade organisation, reports that imports from Asia comprise mostly of electronic items such as refrigerators, air-conditioners and television sets.

Almost all of our products are now being made in Asia, especially China, says Asia expert Taro Suzuki.

C H Kwan, senior researcher at the Research Institute of Economy, Trade and Industry, a think-tank affiliated with the Ministry of Economy, Trade and Industry, says the Japanese plants in Asia now manufacture the kind of products that used to be exported from Japan a few decades ago.

The reason for this is the technology and expertise exported by the Japanese to Asian countries, principally China, where labour prices are only a fraction of those in Japan.

Direct investment by Japanese companies in China, the biggest recipient of Japanese capital, totalled dollars 2.1 billion dollars in the first four months of this year, up 117 percent from the same period last year.

Analysts predict that the flow of Japanese direct investment in China is likely to hit a record this year.

Electronic makers are leading the way. The electronic giant Hitachi, for instance, announced plans on Tuesday to invest more than 100 billion yen (816 million dollars) over the next five years in its China operations to boost sales and production capacity.

The planned investment is roughly five times Hitachi’s total investment in China to date. The company says it will focus on semiconductors used in mobile phones, personal computers, computer peripherals and home appliances.

Other companies are following suit. Dentsu Inc, Japan’s largest advertising agency, has announced it will spend 6.6 billion yen (55.27 million dollars) to boost operations in Asia.

Dentsu said it will set up a 2.01 billion yen (6.6 million dollar) fund for investment in China, South Korea, Taiwan, South Korea, South- east Asia and India for advertising and information technology.

Despite the alarming drop in the trade surplus, economists here hesitate to say that Japan is losing its competitive advantage to other Asian countries.

“Japan has long taken the lead through its relative economic superiority. The new economy will focus on new products like services, software such as electronic games which Japan has the lead in, and other technology and digital developments, ” said Kwan.