It's remarkable that the proportion of exports to the USA has practically halved in ten years. Figures from Japan's Ministry of Finance show that Japan actually had a trade deficit with China in 2009, while maintaining a trade surplus with the US.(2) This result would be consistent with the idea that Japanese companies source components from China for products that are in part then exported to the rest of the world.
This shift might cause the focus of Japan's monetary authorities to switch somewhat regarding foreign exchange matters. The dollar/yen rate will be a concern more for the potential effect on Japan's holdings of US Treasury debt than for its effect on exports to the US. Ending the yuan peg by the PRC and the likely resulting appreciation versus the dollar would have the effect of increasing the costs to Japanese manufacturers of parts sourced in China but would also increase the purchasing power for Chinese buyers of Japan's finished goods. At the same time, Japanese manufacturers would be squeezed by the increased cost of components from China for products shipped to the USA given that the yen/dollar exchange rate remained stable. Increasing exports to China would be a logical priority for Japan's economic policymakers.
1 comments:
I think you've got this the wrong way round:
Japanese assembly plants in China source high value components from Japan and the assembled final products are then exported from China to the rest of the world.
In general Japanese manufacturers have recognized the value of production technology and kept the high value-added processes at home (e.g. flat-screen panels). The trade deficit probably arises from high volume low margin products, agricultural goods, and imports of Chinese assembled goods (flat-screen TVs: one-off demand due to upcoming conversion to digital TV?) plus the adverse impacts of the exchange rate - yen vs. dollar-linked yuan.
The profits from Japanese assembly plants in China will flow back through the current account; they do not appear in the trade account.
Another factor driving Japanese exports to China has been Chinese demand for capital goods for manufacturing and infrastructure projects.
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