Japan has experienced strong post-war economic growth and a large GDP, though its population is aging and declining. It has historically had a large trade surplus due to exports exceeding imports, especially in manufactured goods, though its trade balance has decreased in recent years. Japan also typically runs a current account surplus and maintains large foreign exchange reserves to intervene in currency markets and influence exchange rates. However, foreign direct investment into Japan remains relatively low despite government efforts to increase it.

1. Japan: A Financial
Insight

2. Outline
• Introduction
• Post-War Economic Growth
• GDP per US$
• GDP PPP Adjusted
• Trade Openness and Breakdowns
• Current Account
• Trade and Trade Policies
• Merchandise Trade Balance
• Service Trade Balance
• Trade Policies
• Tourism
• Exchange Rate
• Market Exchange Rate
• LOP (Big Mac Index, Implied Exchange Rate)
• Nominal (Real Effective Exchange Rate)

3. Outline
• Financial Account and Foreign Reserves
• Financial Account
• Foreign Direct Investment
• Portfolio Investment
• Other Investments
• Foreign Reserves
• Conclusion

4. Introduction

5. Japan Post-War Economic
Miracle

6. GDP per US$

7. GDP per US$

8. GDP PPP Adjusted
The GDP per capita PPP is obtained by dividing the country’s
gross domestic product, adjusted by purchasing power parity, by
the total population.

9. GDP PPP Adjusted

10. Trade Openness and
Breakdowns - Export

11. Trade Openness and
Breakdowns - Export

12. Trade Openness and
Breakdowns - Export
Main export partners are:
• United States
• China
• South Korea
• ASEAN
• Taiwan

14. Trade Openness and
Breakdowns - Import

15. Trade Openness and
Breakdowns - Import

16. Trade Openness and
Breakdowns - Import
Main Imports are (% from GDP):
• Mineral Fuels (23%)
• Petroleum (10%)
• Electrical Machinery (15%)
• Machinery (9%)
• Food (9%)
• Manufactured Goods (9%)
• Chemicals (8%)
• Raw Materials ( 6%)

17. Trade Openness and
Breakdowns – Import
Main import partners are:
• China
• United States
• Australia
• South Korea
• Saudi Arabia
• United Arab Emirates
• Qatar

18. Trade Openness - Definition
What is Trade Openness?
It is a measure of economic policies that either restrict or invite
trade between countries.
How do we get or measure it?
Trade Openness : {(Export + Import)/GDP}

19. Trade Openness – The Index
and Comparison

20. Trade Openness – The Barriers
• Extreme sanitary import barriers
• Unfair competition in private insurance and postal services
• High tariffs and import policies on agricultural products
• Quotas and localization of some products such as:
• Apparel
• Building Materials
• Wooden Products

21. Current Account – The
Definition
Current Account is the sum of the balance of trade (exports
minus imports of goods and services), net factor income (such
as interest and dividends) and net transfer payments (such as
foreign aid).

22. Current Account

23. Current Account

24. Trade and Trade
Policies

25. Trade and Trade Policies –
Merchandise Trade Balance

26. Trade and Trade Policies –
Merchandise Trade Balance

27. Trade and Trade Policies –
Services Trade Balance
-70,000
-60,000
-50,000
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Japan Net Services
Travel
Insurance
Other services
Telecom
Transport

28. Trade and Trade Policies –
Services Trade Balance

29. Trade and Trade Policies –
Services Barriers
• Unequal competition between Japan Post and other
international delivery service provider
• Separate regulatory scheme that applies to business insurance
• Local telecommunication service provider dominates the
market
• Time-consuming legal processes and limited legal services
that foreign lawyers can provide
• Complicated legal requirements for foreign universities
operating in Taiwan

30. Trade and Trade Policies –
Tourism Sector

31. Trade and Trade Policies –
Tourism Sector

32. Trade and Trade Policies - The
Policies
1. Aid For Trade Asia-Pacific Regional Technical Group
2. Tokyo International Conference on African Development
3. Assistance to One Village, One Product Management

33. Exchange Rate

34. Market Exchange Rate
• Yen is one of the most traded currencies in the
world;
• Low interest rate since the Yen is used in carry
trades;
• Since the 1990s, the Bank of Japan, the country's
central bank, has kept interest rates low in order
to spur economic growth;
• Recently the Bank of Japan has expanded their
purchase of Yen, hoping to overturn the deflation
tide to inflation;

35. USD to JPY Exchange Rate for 2011-
2016

36. JPY to USD Exchange Rate for 2011-
2016

37. Japanese Big Mac Index for 2000-
2016

38. Real effective exchange rate index (2010 =
100) for Japan

39. Nominal (real) Effective Exchange
Rate
• The Bank of Japan hopes to bring Japan from
deflation to inflation, aiming for 2% inflation. This
move has sparked concerns that the authorities in
Japan deliberately devalue yen in order to boost
exports;
• The commercial sector in Japan worried that the
devaluation would trigger an increase in import
prices, especially in energy and raw materials;
• On May 9, 2013, the currency weakened to 100
yen for every US dollar for the first time since
April 2009 and didn’t go back to its initial stage of
2013th.

40. FinancialAccount
-100
-50
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Billions
Of
US
Dollars
Financial Account
Financial Account
"Financial account" covers transactions of financial assets and liabilities between residents and nonresidents, and
comprises the following sub-components: direct investment, portfolio investment, financial derivatives, and other
investment.
The following sub-components of financial account are classified by the sector of the resident: portfolio investment,
financial derivatives, and other investment. In Japan's BOP statistics, the monetary authorities and general government
are included in public sector.
(Source: International Monetary Fund Data US Dollars)

41. Foreign Direct Investment
The Abe administration’s updated growth strategy calls for doubling the outstanding amount of foreign direct investment in Japan to ¥35
trillion by 2020, with the government taking necessary policy steps and the prime minister and other top leaders using their overseas
visits as opportunities to persuade foreign businesses to invest here.
Companies trying to survive global competition make their overseas investment plans based on their assessment of the growth potential
of each market, as well as infrastructure development and cost and quality of local labor.
On the other hand, FDI in Japan stood a mere $2.3 billion in 2013, although the figure represented a 33 percent increase from the
previous year.
Japanese firms are expanding their investments worldwide, and the return on such investments more than offset the nation’s ballooning
trade deficit in fiscal 2013. However, the shortage of investments in Japan casts clouds over the prospect of domestic job creation, tax
revenue and income.

42. Portfolio Investments
(Source: World Bank US Dollars)
"Portfolio investment" covers transactions between residents and nonresidents in equity and debt securities that are not included
in "direct investment" and "changes in reserve assets."
Bonds and notes and money market instruments are included in this component. Acquisitions by nonresidents of CD issued by
Japanese banks are recorded under other investment (currency and deposits).
Japan’s core Consumer Price Index has turned positive since June 2013 and the BoJ’s asset purchases are on track. Expectation of
inflation should drive consumer spending and corporate capital spending.
Japanese corporate earnings have recovered strongly due to the Japanese Yen depreciation and economic recovery of both Japan
and overseas in 2013. It is much easier for Japanese corporates to create profit now because they have significantly lowered its
fixed cost base and earnings break-even point since the financial crisis in 2008.

43. Other Investments
• (Source IMF) Net Inflow: (OIA 573.99 – OIL 775.95= -201.96)
• "Other investment" covers all financial instruments other than those classified as direct investment, portfolio investment,
financial derivatives, or reserve assets. This component includes trade credits, loans, currency and deposits, and other
assets/liabilities.
• Other assets/liabilities include receivable and payable accounts resulting from timing difference (adjustment for the timing
difference between contract date and settlement date) since January 2005 when the time of recording for portfolio investment
was changed from settlement date to contract date. Securities lending transactions are recorded under loans in other
investment.
• Transactions of nonmonetary gold pertaining to investment in gold and gold savings accounts are also included in other
investment (excluded from "goods" in the current account). These transactions are defined as financial transactions because
they do not involve physical movement of goods across Japanese customs frontiers, and they generate fixed interest.
-300
-200
-100
0
100
200
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Billions
of
US
Dollars
Other Investments
OI Assets
OI Liabilities

44. Foreign Reserves
In Japan, Foreign Exchange Reserves are the foreign assets held or controlled by the country central bank. The
reserves are made of gold or a specific currency. They can also be special drawing rights and marketable securities
denominated in foreign currencies like treasury bills, government bonds, corporate bonds and equities and foreign
currency loans.
Foreign exchange reserves in Japan increased to 1,262,099 USD million in March of 2015 from 1,254,100 USD million
in February of 2016. It is the largest foreign exchange reserve since November 2014. In March 2015, the reserves
stood at 1,245,316 USD million.
Foreign Exchange Reserves in Japan averaged 280948.46 USD Million from 1957 until 2016, reaching an all-time high
of 1306668 USD Million in January of 2012 and a record low of 455 USD Million in September of 1957. Foreign
Exchange Reserves in Japan is reported by the Ministry of Finance, Japan.

45. Conclusion
Japan is still showing strong indications that their economy is
stabilizing. Even though that there are some distortions in its
GDP growth in the recent years (due to plunge in global energy
and commodities prices).

46. Conclusion
Based on the information represented in “Exchange Rate” part
of paper we can conclude that Yen is still one of the most traded
currencies in the world and it will surely remain so. Huge benefit
of Yen is its low interest rates, which is very beneficial when
used in carry trades. Government support is also influencing the
currency in positive way, like announcements about expanding
Asset Purchase Program, aiming for 2% inflation, etc.

47. Conclusion
• Japanese population has begun to decline and the proportion
of people of working age continues to decrease. The birthrate
is well below replacement level. Japanese people are aging
fast while life expectancy continues to increase
• Ultimately, Japan will only survive and prosper if it alters its
deep-seated prejudice against immigration. One argument
against immigration is that it would alter significantly Japan’s
homogeneous population with its shared values and
harmonious consensus.

48. Thank You For Your
Attention!