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CHAPTER 6 FOREIGN TRADE, BALANCE OF PAYMENTS AND INTERNATIONAL COOPERATION
This chapter covers exports and imports, foreign investment in Japan and Japan's investment overseas, the balance of payments, and international cooperation.
The section of exports and imports contains statistics on quantity and value of exports and imports; and indices of foreign trade. Data are derived from the "The Summary Report on Trade of Japan" by the Japan Tariff Association.
The section of foreign investment in Japan and Japan's investment overseas contains statistics on the introduction of foreign capital and Japan's investment overseas. The source of data is statistics compiled by the Bank of Japan and posted on the both websites of the Ministry of Finance and of the Bank of Japan.
The section of balance of payments contains statistics on foreign exchange rates, balance of payments, gold and foreign exchange reserves, and the international investment position of Japan. Data are obtained from "Bank of Japan Statistics", "Financial and Economic Statistics Monthly" and "Balance of Payments Statistics" by the Bank of Japan, and "Balance of Payments ", "International Reserves / Foreign Currency Liquidity" by the Ministry of Finance.
The section of international cooperation contains statistics on economic cooperation and international cultural exchange. Data are supplied by "White Paper on Official Development Assistance (ODA)" by the Ministry of Foreign Affairs and statistics released at the website of the Japan Foundation. For students received from overseas, see "25 Education" too.
Foreign Trade Statistics
Foreign Trade Statistics originated from the "Exports and Imports at Every Open Port", first compiled in 1869. Its compilation was transferred to the Ministry of Finance in 1871 and has stayed there up to date. The statistics, also called customs clearance statistics, are tabulated monthly based on export declarations, re-export declarations, import declarations, applications for approval of entrance of foreign goods into bonded warehouse or bonded manufacturing warehouse, etc. submitted by exporters and importers when export or import goods pass through the customs houses. In the compilation of the statistics, the following goods are treated as exclusion items: small-sum goods, value of which is not more than 200,000 yen, trade samples, goods smuggled, gifts and donations, ship's and aircraft's stores, personal effects of travellers, goods for entertainment, goods relating to the United States Forces stationed in Japan and to the UN forces and containers for repeated-use, etc.
These statistics are counted, for exports, as of the day when the ship or aircraft carrying goods departed from the port, and, for imports, as of the day when the import was licensed or approved. Export prices are based on f.o.b., and import prices, on c.i.f. Names of countries refer to countries (places) of destination for exports, and countries (places) of origin of imported goods. If these are unknown, loading countries (places) of imported goods are shown. Conversion into Japanese yen is based on the exchange rates published weekly by the superintendent of customs (weekly average of effective market rates two weeks before the week to which the declaration day of export or import belongs).
Index of Foreign Trade
The indices are derived from the Foreign Trade Statistics mentioned above. They consist of value indices, unit value indices, quantum indices and indices of terms of trade based on unit value indices. All of them are compiled every month by the Ministry of Finance. The present indices adopt 2010 as their base period. Value indices are computed by simple index, taking the total value of exports or imports in the base period as 100. Unit value indices are computed by the Fisher-type formula, and the quantum indices are obtained by dividing the value indices by the unit value indices. As regards the export and import price indices, see "20 Prices".
Introduction of foreign capital and investment overseas
Basic laws in Japan concerning foreign exchange control consisted of the Foreign Exchange and Foreign Trade Act ("Foreign Exchange Act") and the Foreign Investment Act. The above two laws prohibited, in principle, overseas transactions, but the transactions were allowed or approved pursuant to the related ordinances, etc. by which the prohibition was lifted. With the development of Japanese economy and of internationalisation, the foreign exchange control and related regulations underwent a gradual relaxation, but the legislation system of the "prohibition in principle" remained intact. However, when the Foreign Investment Act was abolished and its contents were absorbed into the Foreign Exchange Act in 1980, the principle for overseas transactions was changed to "free in principle". And, by the 1998 revision of the act, the regulation of prior permission / notification was abolished in general, and the conditions of overseas transaction were improved in order to promote free and speedy transactions.
The introduction of foreign capital refers to foreign investment in Japan, when viewed from foreign investors who supply capital, whereas overseas investment refers to investments in foreign countries made by Japanese residents. Investments are broadly classified into direct investments and portfolio investment, according to their type. Direct investment refers to the acquisition of equities for the purpose of management participation, the lending of capital or the establishment of subsidiaries or branch offices. On the other hand, portfolio investments refer to investment in securities made through securities markets for earning capital gains or investment returns. Data on the introduction of foreign capital and overseas investment are published by the Ministry of Finance. The release of "Foreign Direct Investment" and "Securities Investment at Home and Abroad" (both by the Ministry of Finance) was discontinued by the end of 2004, and from January 2005, the data are included in the Balance of Payment.
International investment position of Japan
This position relates to the balance of external assets and liabilities of Japan at a given time, and is compiled annually as of 31 December by the Bank of Japan, to whom the Minister of Finance delegated authority. In contrast to the balance of international payments which shows external transactions during a given period from the side of flow, the balance of external assets and liabilities clarifies them from the side of stock as the result of the flow. It is calculated by accumulating the balance of payments, with necessary adjustments made.
Foreign exchange rates
Foreign exchange rates refer to exchange rates between the currency of a country and the currencies of the rest of the world. In Japan, the basic foreign exchange rates are determined by the Minister of Finance. Since the introduction of the floating rate system in 1973, difference between the basic rate and the effective market rate became significant. And so, in December 1977, it was decided that the basic rates are to be revised twice a year based on the half-year average of effective market rates. From January 2010 on, the basic rates are published every month based on the monthly average of effective market rates two months before. In contrast, an arbitrated rate of currency A to currency B is calculated from the rate of A to C and the rate of B to C, where C is an intermediary currency.
Inter-bank rates or market rates refer to rates traded between authorised foreign exchange banks. On the other hand, rates for customers refer to those applied to transactions between banks and customers, consisting of selling rates, i.e., the bank's selling rates to customers, and buying rates, i.e., the bank's buying rates from customers.
Balance of Payments Statistics
Balance of Payments Statistics is a statement designed to provide a systematic report of all the international economic transactions based on the principles of book-keeping by double entry. It is compiled by the Bank of Japan, with the authority delegate by the Minister of Finance, and with the method of calculation and the form of presentation consistent to the Manual of the International Monetary Fund (IMF) concerning the balance of payments statistics. Economic transactions refer to all the transactions of goods and services between residents and non-residents of Japan as well as the increase or decrease of Japanese assets and liabilities in foreign countries. It does not matter whether it is onerous or free of charge, nor if it is settled by yen or a foreign currency. The Balance of Payments Statistics of Japan based on the IMF manual were started in 1966, replacing the former foreign exchange statistics. But they became inadequate to show the international transactions properly as a result of significant evolution of global economic conditions. Following the issuance of the fifth edition of the Balance of Payment Manual of the International Monetary Fund in 1993, the Balance of Payment Statistics of Japan were considerably revised for January 1996 and on, for the first time in 30 years. And further, in accordance with the sixth edition of the Balance of Payment Manual, a significant revision was made from the transactions in January 2014. Major components after the revision are "Current account" consisting of "Goods ", "Services ", "Primary income" and "Secondary income ", "Capital account" and "Financial account ".
Current account
The current account is the sum of "Goods", "Services", "Primary income" and "Secondary income" and shows all transactions with movements of credits/debts between residents and nonresidents.
- Goods and services
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This category is the sum of "Goods" and "Services" and shows transactions in items that are the outcome of production activities.
- Goods
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This category shows exports and imports of goods, that is, transactions of goods between residents and nonresidents.
- Services
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This category shows transactions in "Transport", "Travel" and "Other services".
- Primary income
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This category includes such income accounts as interests and dividends associated with external credits or debts.
- Secondary income
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This category shows income accounts associated with provision of assets without reception of value between residents and nonresidents, including receipts and payments of grant aids, sectors, contributions and donations of public/private sectors.
Capital account
The capital account, in addition to provision of fixed assets without reception of value and debt forgiveness, include gross acquisitions/disposals of nonproduced nonfinancial assets.
Financial account
The financial account is the sum of "Direct investment", "Portfolio investment", "Financial derivatives", "Other investment" and "Reserve assets" and shows transactions of financial assets with movements of credits/debts between residents and nonresidents.
Gold and foreign exchange reserves
These reserves refer to foreign currency assets (external assets with liquidity) held by the monetary authorities of a country as reserves for external payment. In Japan, the statistics are published monthly by the Ministry of Finance. Foreign currency assets are composed of gold, foreign currencies, reserve position in IMF and special drawing rights (SDR). It should be noted that the increase or decrease in the gold and foreign exchange reserves accounts for a major part of the public sector in the balance of monetary movements with regard to the balance of payments.
Economic cooperation
Data are based on "White Paper on Official Development Assistance (ODA)" by the Ministry of Foreign Affairs. Exchange of information and views and adjustment of policies are made by the Development Assistance Committee (DAC) consisting of 23 member countries of the Organisation for Economic Co-operation and Development (OECD) and European Union (EU) to promote economic assistance to be extended to developing countries. The flows of funds are shown classified into official development assistance, other official flows and private flows.
Official Development Assistance (ODA)
ODA refers to the assistance which is <1> rendered by the government or government-affiliated agencies, <2> given for the purpose of promoting economic and social development and improving welfare of developing countries, and <3> conveys a grant element (G. E. : indicator of "softness" of assistance conditions) of at least 25 percent. The ODA is broadly divided into bilateral ODA and multilateral ODA. Then, the bilateral ODA is further divided into bilateral grants and ODA Loans, and the bilateral grants comprise grant aid and technical cooperation. Multilateral ODA refers to the indirect assistance to developing countries in the form of contributions and subscriptions to multilateral institutions.
Other official flows
Meant by this is official assistance other than official development assistance, which aims at promoting exports. Included are securities transactions issued on the domestic market by the International Bank for Reconstruction and Development (World Bank), etc.
Private flows
Private flows refer to private transactions, and mainly consist of private export credits and direct investments. Private export credits relate to those allowing deferred payment for purchase which Japanese exporters make to importers of developing countries.
The Japan Foundation
The Japan Foundation was established in 1972 as a special public corporation under the jurisdiction of the Ministry of Foreign Affairs and became an independent administrative institution in 2003 in order to promote foreign countries' understanding of Japan and to cultivate international mutual appreciation. The Foundation conducts its own cultural exchange projects, and, at the same time, is allowed to render monetary assistance in a certain area to other bodies and institutions.
