Japan's Balance of Payments for 2002
May 30, 2003
Bank of Japan
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Summary1
A. Overall Trends2
In the balance of payments for 2002, the current account surplus registered 14.2 trillion yen, an increase from the surplus of 10.7 trillion yen in 2001.
The capital and financial account recorded a net outflow of 8.0 trillion yen, widening from the net outflow of 6.2 trillion yen in 2001, an expansion
primarily reflecting movements in the financial account. The year-on-year growth in reserve assets was 5.8 trillion yen, up from 4.9 trillion yen in 2001.
1 This article is based on data available as of February 20, 2003.
2 Figures for 2002, including charts, are preliminary unless otherwise noted. For a key to the symbols and abbreviations used in this article, see page 144.
Annual, semiannual, and quarterly figures in this article, including charts, are on a calendar-year basis unless otherwise noted.
B. Major Developments in the Balance of Payments for 2002
1. A widening of the current account surplus due to structural factors (shift of production bases overseas and an increase in overseas production)
Structural factors contributed significantly to the widening of the current account surplus in 2002. Specifically, there was a surge in Japan's exports of capital goods and parts, as capacity at newly established Japanese production bases in Asia and especially in China became fully operational.
The trade surplus widened for the first time since 1998 primarily due to an expansion in exports. Exports increased as a result of (1) brisk sales of Japanese motor vehicles worldwide, (2) restocking of IT-related goods in the first half of 2002, and (3) a surge in demand for equipment, raw materials, and parts in the second half of 2002. The third factor reflected the influence of Japanese production bases abroad, as these became fully operational or began to increase production.
China replaced the United States as Japan's largest trading partner in terms of imports due to an increase in imports of manufactured goods from China. However, the trade deficit with China narrowed significantly in 2002 because the increase in exports of equipment, raw materials, and parts more than offset the increase in imports. When trade with Hong Kong is included, Japan recorded a small trade surplus with China.3
The deficit in the services account shrank because deficits narrowed in the transportation and other services accounts, contributing to the widening of the current account surplus. The deficit in the transportation account narrowed because air freight charges recorded a surplus in the second half of the year. This was in part because demand for semiconductors and other electronic parts increased as overseas production bases newly established by electrical machinery manufacturers became fully operational.
The deficit in other services also narrowed. This was partly attributable to an increase in royalty receipts due to an expansion in Japanese carmakers'
production overseas. The deficit in royalties and license fees contracted for the sixth consecutive year, registering a record-low deficit.
3 In Japan's trade statistics, trade partners are defined as countries of origin for imports and as countries of destination for exports. Accordingly, Japan's exports to mainland China via Hong Kong are recorded as exports from Japan to Hong Kong in Japan's trade statistics, and as imports from Japan to mainland China in China's trade statistics.
2. A high level of outward and inward direct investment
Outward direct investment by residents recorded a substantial net outflow in 2002, despite a falling off in large-scale investments in telecommunications. This was because Japanese carmakers and electrical machinery manufacturers continued to invest actively in their subsidiaries in the United States and Europe. Inward direct investment by nonresidents marked the second highest net inflow on record, reflecting active investment in industries such as pharmaceuticals and chemicals, and the automobile industry.
3. A record-high investment in foreign equities by residents
Investment in foreign equities by residents recorded a record-high net outflow (purchases) due to purchases by trust banks (trust accounts). Public pension funds significantly increased purchases of U.S. and European equities using newly distributed funds. In addition, corporate pension funds actively invested in foreign equities toward the summer, expecting a rise in the stock prices, as an early recovery in the U.S. economy was anticipated.
4. Dissolution by a major Japanese investor of its overseas "LP" fund management scheme
A major Japanese investor dissolved a fund management scheme that made use of overseas limited partnerships (LPs). As a result, securities were transferred to Japanese trust banks (residents) from the LPs (nonresidents), considerably affecting the financial account (outward and inward portfolio investment and other investment) at the time of the transfer.4
The transfer of securities held by the LPs was recorded in the balance of payments statistics as follows: (1) the transfer of Japanese equities and bonds issued by residents was recorded as sales (an outflow) by nonresidents in inward portfolio investment; (2) the transfer of foreign equities and bonds issued by nonresidents was recorded as purchases (an outflow) by residents in outward portfolio investment; and (3) the return of capital subscribed to the LPs was recorded as a collection (an inflow) in other assets in other investment.5
4 This transfer did not result in an actual flow of funds.
5 The net outflow in inward and outward portfolio investment and the net inflow in other assets in other investment balanced.
