RIETI Report December 2012

Trade in the Current Economic Crisis

Japan has traditionally been one of the world's largest external creditors as well as the world's largest debtor against its own citizens. However, 2011 saw the first trade deficit since 1980, and this year's forecast doesn't expect a recovery back into surplus. Furthermore, the domestic debt situation is not expected to improve visibly. In the December issue of the RIETI Report, we present "Japan as an External Creditor and Internal Debtor: Are These Positions Sustainable?" written by Prof. Dr. Rolf J. Langhammer of the Kiel Institute for the World Economy for our Perspectives from Around the World section.

Prof. Dr. Langhammer breaks down the components of Japan's trade account and finds Japan's situation similar to developments in France and Italy where they face severe international competitiveness problems of the home base. He discusses the future implications of the gap between the international rates of return on risk capital and the domestic rates of return in Japan. Prof. Dr. Langhammer sees this gap as likely to shrink and explains his reasons. At the same time, he urges Japan to accelerate structural changes although they will be difficult and time-consuming tasks.

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Trade in the Current Economic Crisis

Rolf J. LANGHAMMER Professor, Kiel Institute for the World Economy

Traditionally and for a long time, Japan has been both one of the world's largest external creditors (as measured by its current account surplus) and the world's largest debtor against its own citizens (as measured by the record-high gross government debt/GDP ratio of about 220%). In 2011, the Fukushima shock followed by temporary breakdowns of cross-border supply chains and losses in export revenues together furthered yen appreciation, and rising imports of fuels led Japan for the first time since 1980 into a trade deficit. 2012 will not show a recovery into a surplus. Nor is it expected that the domestic debt situation will visibly improve.

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