Japan's Balance of Payments for 2001
May 31, 2002
Bank of Japan
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I. Summary
A. Overall Trends 1
In the balance of payments for 2001, the current account surplus registered 11.1 trillion yen, a decline from the surplus of 12.6 trillion yen in 2000 2. The capital and financial account recorded a net outflow of 7.0 trillion yen, down from a net outflow of 9.1 trillion yen in 2000, a fall primarily reflecting movements in the financial account. The year-on-year growth in reserve assets was 4.9 trillion yen, down from the 5.3 trillion yen in 2000.
1 Figures for 2001, including charts, are preliminary unless otherwise noted. For a key to the symbols and abbreviations used in this article, see page 127.
Annual, semiannual, and quarterly figures in this article, including charts, are on a calendar-year basis unless otherwise noted.
2 From the figures for January 2002, interest received on financial derivatives is included in the capital and financial account (financial account), instead of the current account (income account). Revised figures have been released by the Ministry of Finance and the Bank of Japan from the figures for January 1996. Figures in this article, however, do not reflect this revision.
Statistical data other than those for the balance of payments are those available at the end of February 2002.
B. Major Developments in the Balance of Payments for 2001
- A sizable decrease in the surplus in goods and services (Chart 1)
The surplus in goods and services declined sharply, recording the second lowest level since 1985. This sharp decline was due mainly to developments in the trade surplus, which was reduced substantially, with a fall in export growth exceeding steady growth in imports. Exports plunged due to cyclical factors, such as a slowdown in the U.S. economy and sluggish final demand for IT-related products, while the growth in imports was firm due to a structural factor, an increase in imports of goods developed and produced especially for the Japanese market (see Box 1 on pages 119-122 for developments in trade between Japan and China).
- A record high surplus in income (charts 2 and 3)
The surplus in the income account expanded considerably and reached a new high, reflecting large increases in the surplus of direct investment and portfolio investment income. As a result, the surplus accounted for about 80 percent of the current account surplus, exceeding the trade surplus for the first time. Factors behind this expansion were (1) an increase in profits of overseas subsidiaries of Japanese companies, (2) an increase in amount outstanding of outward portfolio investment by residents, and (3) a depreciation of the yen that pushed up income in yen-denominated credits (see Box 2 on pages 123-124 for determinants of portfolio investment income).
- A sharp fall in the deficit in services after the terrorist attacks in the United States (Chart 4)
The number of Japanese travelers going overseas by air from Japan fell sharply due to concerns about terrorism after the terrorist attacks in the United States on September 11, 2001. As a result, deficits in the transportation (passenger fares for air transport) and travel accounts shrank substantially from September, causing a decline in the deficit in the services account (see Box 3 on pages 125-126 for the effects of the terrorist attacks on the balance of payments).
- A high level of outward direct investment by residents (Chart 5)
Outward direct investment by residents reached a net outflow of 4.7 trillion yen, the highest level since 1990 when it marked 7.4 trillion yen. This was mainly due to active investment in telecommunications companies and carmakers in the United States and Western Europe. Meanwhile, inward direct investment by nonresidents decreased for the second consecutive year to 599.3 billion yen. This was due to no large-scale investment in the automobile industry and financial services and insurance, after substantial investment in these industries in 1999 and 2000.
The current account surplus decreased by 12.0 percent, after increasing in the previous year. This was due to a substantial decline in the trade surplus and an expansion of deficits in the services account.
The surplus in the trade balance shrank for the third consecutive year, reflecting the following developments in exports and imports.
The value of exports declined by 5.9 percent from the previous year, after showing positive growth in 2000. The decline was mainly due to a decrease in exports of capital goods and parts related to electronics and IT to Asia.
The value of imports grew by 3.0 percent year on year, increasing for the second consecutive year to reach a new high. Although imports, especially from the United States and newly industrialized economies (NIEs), decreased in value due to slack demand for IT-related products, this decrease was more than balanced by an increase in imports mainly from Asia, and by the rise in import prices due to the depreciation of the yen.
The deficit in the services account expanded for the first time in five years, owing to an increase in the deficit in other services.
The surplus in the income account expanded for the second consecutive year and recorded a new high 3. This was partly due to an increase in (1) the surplus in direct investment income caused by the recovery in the profits of overseas subsidiaries of Japanese companies and the depreciation of the yen, and (2) the surplus in portfolio investment income resulting from the change to a surplus in interest rate swaps and the depreciation of the yen. The income account surplus exceeded the trade surplus for the first time and accounted for almost 80 percent of the current account surplus.
The deficit in current transfers shrank for the second consecutive year. This was owing to the decline in (1) contributions to international organizations in the official sector and (2) payments of fines and settlement payments in other sectors.
3 In the figures revised and compiled on the basis of the fifth edition of the Balance of Payments Manual issued by the International Monetary Fund (IMF), available from January 1985 figures. Both the original data and seasonally adjusted figures are available.
D. The Capital and Financial Account
Outward direct investment by residents recorded a large net outflow reflecting the global industrial reorganization. For the second consecutive year, inward direct investment declined due to no large-scale investment.
Investment in foreign bonds and notes by residents recorded an increase in net purchases (outflow) because life insurance companies and banks actively purchased U.S. and European bonds. Investment in foreign equities by residents registered a decrease in net purchases (outflow) reflecting a decline in stock prices worldwide.
In investment in Japanese bonds and notes by nonresidents, net purchases (inflow) narrowed substantially because investors were reluctant to purchase government bonds given that there was hardly any room for interest rates to decline further. Investment in Japanese equities by nonresidents saw a shift to net purchases (inflow), reflecting active investment in the first half of the year based on expectations for an economic recovery and structural reforms under the Koizumi administration.
Other investment shifted to a large net inflow. This was because Japanese banks collected funds deposited with other banks overseas (inflow) as they matured given that yen funds were abundant in the overseas financial markets, while foreign banks in Japan raised funds from overseas (inflow) when the cost of funding yen in exchange for the U.S. dollar became negative.
