Balance of payments accounts of Japan (1960-90)
Encyclopedia
In its balance of payments accounts, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

has traditionally run a deficit in services. Trade in services includes transportation (freight and passenger fares), insurance, travel expenditures, royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...

, licensing fees, and income from investments. The deficit in services rose steadily from US$
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

99 million in 1960, to nearly US$1.8 billion in 1970 and to more than US$11.3 billion in 1980 which can be attributed to rising royalty and licensing payments for Japan's acquisition of technology from other industrial countries and to rising deficits in the trade-related services of transportation and insurance. The transportation deficit rose after the 1960s, as rapidly climbing labor costs made Japanese-flag vessels less competitive, leading to greater use of foreign-flag carriers (including many flag of convenience
Flag of convenience
The term flag of convenience describes the business practice of registering a merchant ship in a sovereign state different from that of the ship's owners, and flying that state's civil ensign on the ship. Ships are registered under flags of convenience to reduce operating costs or avoid the...

 vessels actually owned by Japanese interests).

Beginning in the late 1970s, however, rapidly growing overseas investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

s began to increase the inflow of investment income. The investments themselves are part of capital flows in the balance of payments, but repatriation
Repatriation
Repatriation is the process of returning a person back to one's place of origin or citizenship. This includes the process of returning refugees or soldiers to their place of origin following a war...

 of earnings on those investments is part of the services account. From a small surplus of US$900 million in 1978, the balance on investment income (earnings from abroad minus the earnings of foreigners in Japan) grew to US$21 billion by 1988. The tremendous growth in Japanese investments abroad had not been matched by any such growth of foreign investment in Japan.

Despite the rapid growth in Japan's investment income surplus, the country's total services account remained in deficit in the 1980s. Offsetting the rising surpluses in investment income were an enormous jump in the deficit on overseas travel and purchases by Japanese citizens while abroad. The net balance on passenger transportation deteriorated from a net deficit of US$1.3 billion in 1985 to a net deficit of US$3.7 billion by 1988, and travel (purchases of goods and services by individuals while abroad) increased from US$3.7 billion to US$15.8 billion over the same short time. This burst of overseas travel and spending came as the movement in the exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

 made foreign travel more attractive to the Japanese. It also reflected the rising perception among Japanese consumers that prices for a wide range of manufactured items were substantially lower abroad than at home, giving them an incentive to purchase these items while out of their country. By the end of the decade, the number of Japanese taking overseas trips approached 10 million annually.

One other nonmerchandise transaction is included in the current account balance—net transfers. These represent the flow of foreign aid from Japan. As the country supplied more foreign aid, the deficit in this account rose from US$1.5 billion in 1980 to US$5.4 billion in 1990 and more than doubled to US$17.6 billion in 1991.

Adding net exports of services and net transfers to the merchandise trade balance
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...

, with imports measured free on board (f.o.b.), rather than as customs, insurance, and freight (c.i.f.), gives the balance on current account. Movements in Japan's current account balance have generally mirrored those of the merchandise trade balance considered earlier, although deficits in services and net transfers have offset the surpluses somewhat. Japan began to register surpluses in the current account in 1965, which later continued to rise, although they were punctuated by short-term deficits following the two oil price hikes in 1973 and 1979 (cf. 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...

 and 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...

).

During the 1980s, Japan's current account balance shot from a record deficit of US$10.7 billion in 1980 to a record surplus of US$87 billion in 1987 before declining to US$57.1 billion in 1989. As a share of GNP, this surplus reached a peak of 4.4 percent in 1985, a large value for a current account surplus. The appreciation of the yen against the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

and other currencies, beginning in 1985, was slow to have any impact on the dollar value of the current account surplus, although it did decline by US$8 billion in 1988.
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
x
OK