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Exports expand in land of the rising
yen
By Hussain Khan
TOKYO -
The rising yen didn't stop Japanese exports from
reaching record levels in 2003. The trade surplus grew
for a second straight year to its highest level in four
years, even though the value of the yen strengthened by
13 percent over the course of 2003, from about 120 yen
per US dollar to 105 at end-of-year.
The
Ministry of Finance (MoF) reported on Monday that
Japan's merchandise trade surplus rose a modest 3
percent in 2003 to 10.24 trillion yen ($96.6 billion).
That's about half as much as Japanese authorities spent
on market interventions during the year to try to stem
the yen's rise.
Japan's exports grew to a record
54.56 trillion yen in 2003. The Finance Ministry notes
that the stronger yen has depressed the yen value of
total exports, but the surge in the quantity of products
being shipped overseas, particularly to Asia, has helped
cancel out that impact. Imports also reached a record
high of 44.32 trillion yen, up 4.7 percent for the year.
During December, with a yen at 105 to the
dollar, the trade surplus expanded 41.2 percent from a
year earlier to 1.12 trillion yen, the surplus' sixth
straight monthly rise. Despite the yen's strength,
exports also grew 8.5 percent in December.
Focus shifts to China
Despite the
yen's rise, Japan's trade surplus with the United States
last year contracted 13.7 percent to 6.59 trillion yen,
as exports fell 9.8 percent to 13.41 trillion yen.
Automobile exports to the US continued to decline as
Japanese auto makers shifted more production to the US
or to other Asian countries, according to Finance
Ministry. As Japan's trade surplus with the US falls and
the yen strengthens, a welcome side effect is that
protectionist sentiment in the US has shifted its focus
from Japan to China.
Japan's trading focus is
also shifting. "The data show that the drop-off in
exports to the US is now being compensated for by
exports to Asia, as well as the EU," an MoF spokesman
explained. The 2003 surplus with the European Union
swelled 23.1 percent to 2.68 trillion yen. Exports to
the EU rose 9.0 percent to 8.35 trillion yen, while
imports were up 3.4 percent at 5.67 trillion yen.
Japan's trade surplus with Asia in 2003 surged
37.6 percent to 5.61 trillion yen, as exports jumped
12.9 percent to a record 25.32 trillion yen while
imports rose 7.4 percent to 19.71 trillion yen, also a
record high. Asian countries increasingly have been
buying Japanese information-technology products, such as
semiconductors and cell phone parts.
Those Asian
surplus figures include a 2.1 trillion yen trade deficit
with China. For a second straight year, Japan imported
more from China that it did from the US. Imports from
China hit a record 8.73 trillion yen. Japan's exports to
China jumped 33.2 percent to 6.64 trillion yen, the
largest total since the ministry began measuring
comparable data in 1961.
Last year, imports of
machinery and equipment from China, such as electronic
parts and office equipment, rose 8.4 percent. Imports of
textile products and raw materials declined, but those
of food and chemical products increased. Japanese
manufacturers increased shipments of materials and
semi-finished products to their Chinese plants.
The growing deficit with China and the move of
manufacturing operations to that nation is sparking
concern about the hollowing out of Japanese industry.
"On a long-term basis, transfer of production facilities
to China by Japanese companies could hurt the Japanese
economy," said Susumu Takahashi, head of the research
division at Japan Research Institute Ltd. Some
economists and politicians believe that China is
exporting deflation to Japan.
While US criticism
of Japan over trade issues diminishes, Japanese
China-bashing may have only just begun.
Denominational shift
To diminish the
impact of the yen's appreciation against dollar,
exporters have shifted to denominating in yen and euros
in place of dollars for exports to Asia and Europe.
Dollar-denominated exports accounted for 48 percent of
Japan's overall exports in 2003, falling below 50
percent for the first time since the Ministry of Finance
began collecting the data in 2000.
The decline
is accompanied by increased yen-denominated exports to
other Asian countries, particularly China. Yen- and
euro-denominated exports each increased by 3 percentage
points over the same period. The decrease in
dollar-denominated exports is a result of the ongoing
shift in Japan's export focus from the US to Asia and
the EU, with exports to subsidiaries operating in China
accounting for a large portion of the increased
yen-dominated trade.
Japanese companies are also
winning back business in yen. Japan's six major
shipbuilders' order books bulged to their highest levels
in 30 years, largely due to orders from China and
Taiwan, denominated in yen. Business was brisk mainly
because of increased orders for vessels used to carry
oil, coal, iron ore and grain to and from China,
according to industry sources.
Exporters
bracing for 100-105 yen/dollar rate
Many
exporters anticipate a further strengthening of the
Japanese currency, revising estimates for the exchange
rate in 2004 to 100-105 yen per US dollar. While the
government and Bank of Japan continue yen-selling
interventions, exporters are fortifying their positions
to withstand a stronger yen. Major automobile and
electrical machinery manufacturers have reportedly
already signed several months' worth of dollar-selling
forward contracts in the 105 yen range.
For
example, Mitsubishi Electric reportedly secured forward
exchange contracts through May and June, while the
dollar was trading around 107-108 yen earlier this
month. The company forecasts an average exchange rate of
about 105 yen for the year and a 15 billion yen hit on
its earnings.
Other companies are also making
adjustments to weather a sustained strong yen. Imaging
giant Olympus, which relies on overseas markets for 75
percent of overall sales, says it is cutting indirect
costs and consolidating components in an effort to
survive a sharp appreciation of the yen. A finance
department representative predicts the exchange rate
will "move toward 100 yen to the dollar by the beginning
of next year".
Matsushita Electric Industrial is
also taking steps to combat the stronger yen, basing its
business plans for the three years starting in fiscal
2004 on a projected exchange rate of 105 yen. Canon also
projects an exchange rate of 105 yen throughout 2004.
The stronger yen will depress operating profits by 25
billion yen compared with fiscal 2003. "The effect of
the stronger yen against the dollar will be mitigated by
the expected weakening of the yen against the euro,"
according to a senior official at Canon.
Hussain Khan holds a master's degree
in economics from Tokyo University and has worked in
Japan as an equities analyst. He is an independent
Tokyo-based analyst on current affairs and economic
issues for newspapers and magazines. E-mail hk@ourquran.com.
(Copyright 2004 Asia Times Online Co, Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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