Immediately following World War II, the devastation of Japan caused a continuing foreign trade deficit as well as a chronic lack of foreign currency. In 1952, however, Japan joined the International Monetary Fund (IMF) and three years later it joined GATT. Between the late 1950s and the late 1960s, the introduction of advanced technology and the building of an extensive domestic industrial infrastructure greatly increased the country’s ability to export. During this period, Japan’s trade was conducted on the vertical model of the processing plant, importing raw materials and exporting finished products. [Source: Web-Japan, Ministry of Foreign Affairs, Japan]

“In 1964, Japan announced its conformance with article eight of the IMF charter, which stipulates the elimination of all restrictions on foreign exchange; this further spurred modernization and high growth. Japan’s trade balance began to show a surplus starting in the second half of the 1960s, although the oil crises in 1973 and 1979 caused temporary balance-of-trade deficits. In the 1980s, Japan’s trade rapidly transformed itself, shifting towards a horizontal model characterized by both the import and export of manufactured products. [Ibid]

“Since the 1990s, the share of overall world trade represented by the exports and imports of East Asian countries has expanded greatly and with this expansion Japan’s dependence on trade within East Asia, particularly with China, has also grown. Since the start of the 21st century, imports and exports had been advancing smoothly in the face of the overheating of the U.S. economy and China’s economic vitality. However, with the global economic crisis that followed the Lehman shock in fall 2008, Japanese exports have suffered a decline. In addition, the cost of oil and other imports has risen, causing Japan to record its first trade deficit in 28 years. [Ibid]

The trade-driven economic prosperity of Japan in the second half of the 20th century was made possible by progress made in achieving multilateral trade liberalization, progress that can be largely attributed to the workings of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). Since the late 1990s, however, WTO negotiations have stagnated, partly due to the diversification of issues being addressed and to the diverse and often conflicting interests of the growing WTO membership. In the absence of global WTO agreements, the trend in recent years has been to negotiate a free trade agreement (FTA) that applies only to them.

Yokohama is the largest port in Japan. Kobe is the second largest port. In recent decades it has lost business to other Asian ports, falling from 4th in world in 1980 to 43rd in 2004 and handles less than one tenth the volume of Singapore. After the earthquake in 1995 the port was renovated and expanded at a cost of $50 billion. Its computerized loading cranes can unload cargo ships a rate of one per minute but often times the cranes stand up which means they are idle.

Japan does a lot of trade in money. In has the world’s second largest foreign reserves after China and has more than $1 trillion in overseas investment. See Foreign Reserves, Macroeconomics,

Websites and Resources

Good Websites and Sources: Ministry of Economy, Trade and Industry ; U.S. Commerce Service Japan ; Japanese ; Japan External Trade Organization (JETRO) ; Export Japan ;Office of the U.S. Trade Representative ; Statistical Handbook of Japan Trade Chapter ; 2010 Edition ; News ; Bizfinder Directory of Trading Companies ; American Chamber of Commerce Japan ;


Good Websites and Sources on Business: Statistical Handbook of Japan Finance Chapter ; 2010 Edition ; News Financial Services Industry Business News: Far Eastern Economic Review ; ; Japan Corporate News ; Wall Street Journal Asia ; Japan Investor ; Japan Economy Watch ; Japan Center for Economic Research ; Japan Inc. Economic and Business News

Marketing Japan Marketing News / ; Plunkett Research ; Research and Markets ; Asaho Shimbun Market Trends ; Business Organizations ; Keidanren (Most Powerful Business Group in Japan) ; Keizai Koho Center, Keidanren’s Research Arm Entrepreneur Association of Japan ; Bizfinder Directory of Trading Companies ; Business Customs and Practices: Culture- at-Work ; Executive Planet ;Tips on Doing Business in Japan ; More Tips on Doing Business in Japan ; Kwintessential

Yen Fluctuations and Trade

The fate of Japanese economy if often tied to the strength or the weakness of the yen. The yen reached a record high against the dollar in April 1995 when it reached 79 yen to the dollar. In July 1998 it reached a record low of 142 to the dollar.

When the value of yen is high (around 80 to 110 yen per dollar), Japanese goods become more expensive overseas and less people buy them, and foreign goods become cheaper in Japan and people buy these goods instead of Japanese products. These forces bring the trade surplus down and cause the value of the yen to decrease.

When the value of yen is high (around 110 to 140 yen per dollar), Japanese goods become cheaper overseas and more people buy them. Also, foreign goods become more expensive in Japan and more people buy Japanese goods instead of foreign products. These forces increase the trade surplus and cause the value of the yen to rise.

In the mid 1970s when the dollar was worth 240 yen, American tourists could travel cheaply in Japan and Japanese products were cheap. In the late 1980s and early 1990s when the dollar was worth 80 yen, the cost of living for Americans in Japan was almost catastrophically high but American companies were able to make inroads in the Japanese economy because American products were cheap in Japan.

A strengthening of the yen affects not only trade with the United States it also affects trade with other countries because many of these transactions are done in dollars. Japan's trade surplus with the rest of the world creates a demand for yen, needed to purchase goods in Japan, which cause the value of he currency to rise.

Eisuke Sakakibara, a deputy finance minister, became known as Mr. Yen because his bold pronouncements were enough to cause major movements in the currency markets. He took his position in 1995 and immediately set about making statements and taking action to lower the value of the yen and help Japan's economy.

Japan’s Balance of Payments

The most frequently used component of balance-of-payment performance is the merchandise trade balance, which is defined as the difference between a nation’s exports and imports. Since the mid-1960s, Japan has consistently run a surplus, which expanded rapidly in the 1980s. This surplus reached a new high of ¥12.39 trillion in 1994 before increases in import activity and other factors caused it to fall back to ¥6.74 trillion in 1996. Subsequently, the stagnation of the Japanese economy resulted in a slump in import activity, and this, combined with the strength of the U.S. dollar, sent the surplus in 1998 back up to ¥15.99 trillion. [Source: Web-Japan, Ministry of Foreign Affairs, Japan]

“Since then the surplus has fluctuated; it stood at ¥12.26 trillion in 2003. In 1996, Japan revised the method used to calculate its international balance of payments, and it began stating official statistics only in yen rather than in both yen and U.S. dollars. The change resulted in the combination of merchandise trade and service trade into the balance on goods and services category and the elimination of the differentiation between long- and short-term capital account balance categories. These changes reflect the increasing importance of the service trade and international capital flows. [Ibid]

“Within its current account balance, Japan has had a chronic deficit in its current transfers balance and its service trade balance. Contributing to the service trade deficit are Japan’s negative balances with respect to transport fees, licensing fees, and tourism (around 16.6 million Japanese tourists traveled abroad in 2010). In 2003 Japan’s service trade deficit fell considerably, partly as a result of a drop in overseas travel caused by SARS and partly due to an increase in royalty income from patents held by automobile manufacturers and other Japanese companies overseas. The current account balance has also been affected by the global economic crisis in 2008.

Trade Surpluses, Tariffs and Protectionism in Japan

One of the main contributors to Japan's phenomenal growth over the past half century or so has been its extraordinary trade surpluses, helped in part by high tariffs to keep foreign imports out and tax-free saving and other incentives to make sure the banks lent money to companies at low interest rates to fuel production. Japanese citizens did their part over the years by buying domestic products even though they often sold for outrageously high prices. Japanese companies made copies of all the goods that foreign companies might want sell in Japan. When Mars introduced M&Ms in 1973, 25 Japanese imitations were available in six months.

The traditional Japanese formula was to import raw material, produce manufactured goods and export them at a higher price. Companies invested abroad but only to supply foreign markets and grew, in some cases, through dumping and ruthlessly seizing market shares. The government protected domestic industries such as farming, banking and small businesses for social and political reasons. In the 1980s, it was illegal for Japanese to import and sell rice.

One former Ministry of Finance bureaucrat told Time, "My duty was to prevent foreign companies from coming into the market." He said he achieved this goal by bogging down foreign companies with paper work and making "a very detailed examination so that it took ages."

Japan has a trade surplus with almost every developed nation in the world. Japan's share of world exports reached their peak in 1986. Since them, of the 1,618 international trade industries that Japan participates in, the export share of 1,250 of these companies declined while only 166 have risen.

Exports and trade surpluses remain essential to Japan’s growth. The period of growth from 2002 to the end of 2006, the longest in the postwar period, was largely driven by exports which rose as proportion of GDP from 10.4 percent to 15.6 percent. In recent years high fuel and material costs have trimmed Japan’s trade surplus. A decline in exports caused by global financial crisis in 2008 and 2009 turned a trade surplus into a trade deficit reached a record ¥952.6 billion in January 2009.

High growth rates in China and India and the rest of Asia bode well for Japan. As people in these countries become more affluent there will be an increase in demand for Japanese products. As time goes on Japan will rely increasing on markets from these countries and less from those in the United States and Europe.

Trade Friction with Japan

Although Japan imports a high percentage of its fuel, foodstuffs, and the raw materials used by its industries, these are often exported in the form of value-added goods, which have gained a large share of the market in many countries with which Japan trades. This sometimes results in trade friction, which has been a recurring problem since the mid-1950s. [Source: Web-Japan, Ministry of Foreign Affairs, Japan]

Until the early 1980s, friction primarily involved efforts to control rising Japanese exports in response to accusations of “dumping” (the sale of products overseas at lower prices than in the country of origin). Complaints by the United States led Japan to place voluntary restrictions on U.S.-bound exports of cotton goods (1957), steel (1969), wool and synthetic fibers (1972), color televisions (1977), and automobiles (1981). Japan also agreed to restrain steel exports to Europe in 1972. On the other hand, since the early 1980s the focus of trade friction, particularly with the United States, has more frequently involved attempts to increase exports to Japan by giving foreign companies greater access to the Japanese market and eliminating so-called “non-tariff barriers.” [Ibid]

Aiming for import liberalization, Japan’s government has taken such policy steps as unilateral tariff cuts, removal of import restrictions, reform of the standards certification system, and import promotion campaigns. Liberalization of agricultural imports, a politically sensitive issue, has led to the elimination or reduction of restrictions on beef, citrus fruits, and many other food products. Dissatisfied with the pace of marketopening measures, in the first half of the 1990s the United States demanded a predetermined share of the Japanese market for such items as semiconductors, automobiles, and automobile parts. This led to disputes over numerical targets, which were vehemently opposed by Japan. [Ibid]

Since the mid-1990s, efforts to solve trade friction have gradually shifted to international arenas, such as the WTO, where many countries are involved in the negotiations. Bilateral trade and economic issues between Japan and the United States continue to be addressed through such vehicles as the U.S.-Japan Regulatory Reform and Competition Policy Initiative. The United States’ trade deficit with Japan peaked at 70.8 percent of the total U.S. trade deficit in 1981, and has been gradually declining since 1992, dropping to 10.5 percent in 2007. With factors such as the reduction of the U.S. trade deficit, strengthened investment relations, and improvements to the WTO’s dispute settlement system, the friction in Japan-U.S. economic relations has been replaced with a harmonious relationship of constructive dialogue. [Ibid]

Trading Houses and Security Firms in Japan

Trade has traditionally been controlled by very large diversified commercial houses known as sogo shosha. Many have their roots in the Meiji period.

Japan's five great sogo shoshas (trading houses)---Mitsubishi Corp (the largest in Japan), Sumitomo, Itochu Corp., Marubeni Corp and Mitsui and Co.--- are involved in the trading of stocks, bonds, basic commodities such as metal and grains, and a wide range of financial items, industrial goods and consumer products. Mitsubishi is Japan’s largest trading company. Mitsui is No. 2.

In terms of turnover the five sogo shoshas are the five largest companies in the world, far ahead of its nearest rival, General Motors. They are able to amass such huge turnovers figures because most of their activities involve trading on slim profit margins.

Container Ships

Most of the goods exported from Japan are transported by container ships. The largest of these ships are 397-meter-long, weight 70,000 tons, are 56 meters wide, 61 meters high and 30 meters deep and can carry 11,000 twenty-foot containers, enough to fill a 44-mile-long train. A patented lashing system is used secure the containers. Around a thousand refrigerators containers and their power supply can be accommodated. Although they only need a crew of 13 they often carry up to 30 people. The ships are powered by 14-cylinder diesel engines that produces 80,000 kilowatts of power and can propel the ships to speeds of 25.5 knots. The anchors weigh 29.4 tons.

The first container ship was the Ideal-X, a refurbished World War II tanker that carried 58 metal boxes from New York to Houston in 1956. The boxes were loaded onto trucks and taken to their destinations. The loading costs were $0.16 a ton compared to $5.83 a ton, the usual cost for loading loose cargo.

The development of container ships has made it possible to have factories and distribution centers almost anywhere because almost everywhere can be reached by a trucks. One of the biggest obstacles for the container industry to overcome in the United States was the gangster-supported longshoremen who didn’t want to lose their jobs.

Other obstacles that had to be addressed were creating storage facilities to handle the containers; designing cranes that could efficiently load and unload them; standardizing sizes; and creating a fleet of trucks and trains that could carry them. The first widespread use of containers came during the Vietnam War when the armed forces used containers to carry supplies from the United States to Southeast Asia.

Japanese Exports


From the late 1950s, the makeup of Japan’s exports shifted to heavy-industry products and away from textiles and light-industry products. In the 1970s, the importance of industrial raw material exports such as chemicals and steel dropped, and exports of machinery and electronics jumped as increasing emphasis was placed on value-added products. From the 1980s through the early 1990s, exports of technology-intensive products such as computers, semiconductors, consumer electronics, machine tools, facsimile machines, and automobiles and other transportation equipment---increased rapidly. [Source: Web-Japan, Ministry of Foreign Affairs, Japan]

“The rate of export increase slowed significantly in the mid-1990s, partly due to the establishment of overseas manufacturing facilities by Japanese companies. Trade friction led automobile manufacturers and other companies to build factories in the United States and Europe, and in order to maintain price competitiveness in the face of the rise of the yen, many companies moved the production of labor-intensive and technically less complex parts and products to China and other Asian nations. The Japanese manufacturing presence in China has greatly spurred exports of capital equipment, components, and parts to that country. [Ibid]

In 2008, exports made up 15.9 percent of GDP, compared to 9.8 percent in 1998. Exports rose 13.4 percent to $774 billion in fiscal 2006-2007. Exports were $384 billion in 2002.

Major exports: motor vehicles, electronics, industrial machines, chemicals. Exports of vehicles and vehicle parts reached about $180 billion in 2007, accounting for roughly 20 percent of Japan exports.

In July 2008 exports to China surpassed those to the United States for the first time since World War II. Export partners in 2001: 1) United States (30.1 percent), 2) China (7.7 percent), 3) South Korea (6.3 percent), Taiwan (6.0 percent)

Japanese Imports

In the immediate postwar era, primary import items included raw fibers that were processed into textiles. In the 1960s and 1970s, following the shift to heavy industry, essential imports included hydrocarbon fuels and metal ore. As a result of the two oil crises in the 1970s, crude oil prices soared, and in 1980 mineral fuels were approximately 50 percent of total imports. In recent years mineral fuels have fluctuated between 15 percent and 20 percent of imports, partly as a result of changes in crude oil prices. The ratio of manufactured products to total imports has increased from 20 percent in the decade of the 1970s to 50 percent in the 1980s and to 60 percent since the 1990s, a ratio that closely parallels those of the advanced economies of Source: The “Trade Statistics of Japan” issued by Ministry of Finance the West. [Source: Web-Japan, Ministry of Foreign Affairs, Japan]

“An important factor in the increase in imports of manufactured goods has been the expansion in exports to Japan from manufacturing facilities that Japanese companies have established abroad since the 1980s, mainly in China and the rest of Asia. In particular, trade with China has expanded since the late 1990s. Japanese companies accelerated their Chinese operations after that country’s domestic demand expanded and it joined the World Trade Organization in 2001, and trade between the two countries continues to increase. Imports of computers and other information technology products have grown, and for some consumer electronics products, such as televisions, sales in Japan of import models exceed those of domestic models. [Ibid]

Major imports: oil, natural gas, coal, food stuffs, raw materials

Japan’s Trade Partners

In January 2007, the leaders of Japan, China and South Korea agreed to hammer out a free trade agreement in the near future.

In 2004, Japan and Mexico signed a free trade deal.

Japan is hoping to expand in Europe by developing energy-efficient and environmentally-products in line with consumer demands and tough environmental regulation in European countries.

Trade with Japan and China

China is Japan's biggest trade partner. China surpassed the United States as Japan’s top trade partner in terms of both imports and exports in 2009. Although exports to China shrunk 20.9 percent to ¥10.24 trillion in 2009 they shrunk even more to the United States: 38.5 percent to ¥8.74 trillion. Trade between the two nations grew by 22.3 percent in 2010, compared to levels in 2009, reaching 26.5 trillion yen, according to the Japan External Trade Organization.

Japan provides China with technology and capital, while China provides Japan with low-cost production and an export platform. Growth in Japan has been driven by surging economic growth in China, increased demand for Japanese products and, even more, by the use of China as a production base for Japanese companies for cars, computers, electronic gadgets and other items. A severe blow to the Japanese economy would hurt China's exports as a severe blow to the Chinese economy would also hurt Japan’s exports. But as times goes trade leverage is flowing in the direction of China who needs Japan much less than it did in the past.

In 2004 when China replaced the United States as Japan’s No. 1 export market. In 2004, China accounted for 20.3 percent of Japan’s total trade, compared with 18.6 percent share for the United States. The total value of Japan-China trade in 2004 was $213 billion. Japan is China’s third largest trade partner. China’s strong growth has helped pull Japan outs its decade-long recession.

Bilateral trade between China and Japan was $266.4 billion in 2008, a 2.5 percent increase from the previous year. In fiscal 2006-2007, trade between China and Japan totaled ¥25.4 trillion in total trade compared ro ¥25.1 trillion between China and the United States. Exports to China from Japan soared to a record ¥11.3 trillion and imports increased 13 percent to a record ¥14.1 trillion.

Japanese exports to China rose 85.6 percent between 2001 and 2003. Japanese mports from China rose 73.3 percent between 2001 and 2003.In 2003, China exported $59.4 billion worth of goods to Japan, compared to $30.9 billion in 1996. Exports to China in 2005 accounted for 13 percent of all exports. Only the United States had a higher share with 22 percent. Imports from China rose 73.3 percent between 2001 and 2003 Exports to China rose 85.6 percent during the same period.

China, Japan and South Korea have formed a $120 billion reserve pool of foreign currency to help countries in Asia in the event of an economic crisis or run of local currencies. In January 2007, the leaders of Japan, China and South Korea agreed to hammer out a free trade agreement in the near future.

United States, Japan and Trade

Trade between the United States and Japan is important to both countries. The United States is largest consumer of Japanese exports. Japan is largest consumer of American exports. Japan has traditionally enjoyed a large trade surplus with the United States, which has been immensely helpful to the Japanese economy. A quarter to a third of the foodstuffs imported from Japan came from the U.S.

China surpassed the United States as Japan’s top trade partner in terms of both imports and exports in 2009. Although exports to China shrunk 20.9 percent to ¥10.24 trillion in 2009 they shrunk even more to the United States: 38.5 percent to ¥8.74 trillion.

Japan had a $82.8 billion trade surplus with the United States in 2007.

Agriculture Subsidies, See imported food

Despite what many think, many American companies haven't penetrated the Japanese market. Many cities have dozens of McDonald's. One of the highest priced issues on the Tokyo Stock Exchange was for Seven-Eleven Japan. 7-11 is the number one convenience store chain in Japan. There are more 7-11s in Japan than in the United States. IBM logs 75 percent of its Asian sales in Japan.

American mail order catalogues popular. Land End, L.L. Bean, Eddie Bauer and the Gap have done well in Japan. The American chain Toys R Us has great success in Japan partly because of the merchandise they offer and partly their trimmed down service staff so that prices can be discounted 10 percent.

American Automobiles in Japan, See Automobiles

Trade Battles Between Japan and United States

Trade battles were a big part of the relationship between Japan and the United States in 1980s and 90s. The pattern of these battles was often like this: the U.S. complained that Japan was using unfair trade practices and Japan retaliated by accusing the U.S. of being a bully and meddling in the affairs of other countries; the U.S. then threatening economic sanctions with Japan responding with some threats of its own; and just before things advanced to the citical stage a deal was struck.

The first trade battles were in 1970s over textiles. After that Japan and the United States battled over everything from baseball caps to jet-fighters. Kodak complained of unfair trade practices by Fuji film which kept Kodak from claiming it rightful share of the Japanese film market. In the 1990s, Japanese Prime Minister Hashimoto said that U.S. Trade Representative Mickey Kantor was "even more aggressive than my wife when I come home drunk."

Trade representatives from Japan and the United States had a major showdown in 1995 over Japan’s refusal to reduce tariffs on American automobile parts. Fed up with Japanese inaction, the United States government imposed 100 percent tariffs on 13 popular luxury Japanese cars in an effort to bring down Japanese trade barriers on automobiles and automobile parts. Japan had 37 percent of American auto parts market while the United States had only a 1.2 percent share in the Japanese market.

In 1997, the U.S. refused to let Japanese ships dock in American ports in disputes over access of American ships to Japan ports and the procedures for American ships docking in Japan. The United States government threatened to block Japanese airlines freight carriers unless Federal Express was allowed to fly through Japan.

In 2005, the United States charged Japanese steelmakers with dumping and imposed duties on Japanese steel. In retaliation Japan imposed duties on American steel.

< Image Sources: 1) Reuters 2) University of Washington 3) 5) NY nerd blog 4) China shipping 6) Toyota

Text Sources: New York Times, Washington Post, Los Angeles Times, Daily Yomiuri, Times of London, Japan National Tourist Organization (JNTO), National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2009 Jeffrey Hays

Last updated October 2012

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