Changes in the Japanese Economy and Japan's Trade with North America

This paper aims at responding to two questions posed by the changes of the Japanese economy since the mid-1980's: how did the Japanese economy reorient itself with the yen appreciation from export-led growth to growth based upon domestic demand? What changes occurred in trade between Japan and her major trading partner, North America, in the process of this reorientation?

The paper first discusses how the Japanese economy shifted its emphasis with the yen appreciation from export-led growth to growth led by domestic demand , and how this reorientation enabled the economy to weather a severe recession caused by the yen appreciation and attain wide-spread prosperity. The necessity of the reorientation, the process of reorientation and the mechanism behind the reorientation are explained.

Next, an overview of changes in Japan's trade during the process of the yen appreciation and the economy's reorientation is provided. Japan's overall trade surplus peaked in 1986 and has since been steadily shrinking. With regard to the contents of Japan's trade, high value-added products are accounting for a larger share of total exports, while the ratio of manufactured imports to total imports is rising.

In light of this overview, the changes in Japan's trade with North America during this period are analyzed. Japan's trade surplus with North America has shrunk much faster than her overall trade surplus. As in the case in overall trade, a shift to higher value-added exports and a rising ratio of manufactured imports can be seen in the trade with North America.

Finally, the findings of this analysis are summerized.