News & Press Releases

The Japan External Trade Organization (JETRO) today released a summary of its 2008 White Paper on International Trade and Foreign Direct Investment (FDI).

Japan diversifies export destinations/products to compensate for weak export growth to the US
Japan’s imports and exports both recorded their highest levels ever in 2007, with exports topping US$700 billion for the first time and the export-to-GDP ratio reaching 16.3%, also a record. Japan’s export growth slowed in the first quarter of 2008, due to a strong yen, high crude oil prices and a deceleration of the US economy. Growth, however, was able to remain positive through strong exports to the EU and emerging economies in East Asia and elsewhere, as well as a diversification of export items. Electric equipment and general machinery, for example, contributed relatively less to export growth, while transportation equipment and base metals and related products contributed more.

Significant opportunity for Japanese firms to expand outward M&A deals
The total value of Japan’s outward M&A deals in 2007 reached a record US$41.0 billion. The bulk of this (US$33.1 billion) was recorded in the first half of the year, while the second half saw just US$7.9 billion in deals. The figure rebounded in the first half of 2008, reaching US$22.2 billion, due to several large-scale M&As. Japanese firms are well-positioned to further expand their use of outward M&As in pursuing their global business strategies, including the securing of natural resources. This is due to the fact that they were less affected by the US subprime mortgage crisis, compared to those in the US and Europe, have ample cash flows and are less dependent on interest-bearing debt.

Levels of inward and outward FDI expanding
In 2007, Japan recorded its highest ever level of inward FDI, totaling some US$22.2 billion. This high figure was attributed to an increase in large-scale inward M&As, due to reorganization and consolidation in such industries as finance, automobiles and medical & pharmaceuticals, suggesting that firms view Japan as an important and attractive market. Indeed, a recent JETRO survey of foreign-affiliated firms in Japan revealed that the country’s business environment is being viewed more favorably: issues that traditionally ranked at the top of firms’ concerns—such as high business costs, complicated administrative procedures and closed markets—all ranked lower in this recent survey. Moreover, Japan gains through such increased inward FDI, as it further internationalizes the economy and increases employment and productivity.

Net income from abroad and net exports help Japan compensate for deteriorating terms of trade
Due to soaring oil and commodity prices, Japan and other resource importers, especially emerging economies, have been suffering from a sharp deterioration in their terms of trade, the measure of relative prices of a country's exports to imports. For Japan, this trading loss has been offset by higher net incomes from abroad (compensation of employees and investment income) and net exports.

Increasing expectations for ASEAN+1 FTAs
A growing number of free trade agreements (FTAs) are coming into effect in the Asia Pacific region (specifically, the ASEAN +6 countries*), with trade among FTA partner countries accounting for half of the area’s total trade (in value). The number of FTAs with ASEAN at one end has also been expanding, as seen in the Japan-ASEAN FTA (called ASEAN-Japan Comprehensive Economic Partnership Agreement or AJCEP), set to go into effect by the end of 2008, and the Korea-ASEAN FTA and China-ASEAN FTA, both of which are already in effect. Under AJCEP, Japanese firms operating in ASEAN will be able to import (duty free) high value-added product parts from Japan, such as flat panels, and export finished products to other ASEAN countries, also duty free. By 2010, major FTAs, including the ASEAN Free Trade Area (AFTA), the Korea-ASEAN FTA and the China-ASEAN FTA, will basically eliminate duties on many items, further enabling firms to utilize such business strategies.

FTAs promoting further liberalization of trade in services, investment and government procurements
FTAs are promoting liberalization of not only trade in goods, but also in services, investments and government procurements. The Japan-Thailand and Australia-Thailand FTAs, for example, are expected to be utilized by firms setting up business in Thailand, as both agreements promote deregulation of foreign investment in the country. And so-called “WTO-plus” provisions written into many FTAs are bringing benefits to firms. Under the US-Singapore FTA, which opened up Singapore’s financial market, Citibank was able to increase the number of its branches and ATMs in the country. And under a recent amendment to the Japan-Singapore FTA, the quota for the number of Japanese firms able to get a full bank license in the country has been expanded. In addition, Japan urges the setting up of special committees with its FTA partner countries to examine ways of improving mutual business environments. The committees have proven useful in seeking improvements in areas such as taxation and customs procedures.

*ASEAN+6 includes the 10 ASEAN nations plus Australia, China, India, Japan, New Zealand and the Republic of Korea.

The full version of the White Paper will be available for free download (in PDF format) from late November on the JETRO website.