The Imbalance in the Falls in Value of Export Receipts and Import Payments due to the Strong Yen and its Impact

Overview

1. Calculations of the impact of the change in the yen-equivalent values of foreign currency-denominated imports and exports due to the strengthening of the yen on the value of trade receipts and payments between Japan and other countries reveal that, for Japan as a whole, the fall in the yen-equivalent value of foreign currency-denominated exports (approximately ¥9.5 trillion) and the fall in the yen-equivalent value of foreign currency-denominated imports (approximately ¥9.9 trillion) virtually cancel each other out, and subtracting one from the other gives a positive balance, if only a very small one (equivalent to approximately 0.1% of GDP).
2. At a regional level, the Chubu Region including Nagoya, whose economy and industry center on manufacturing and are highly export-dependent, has suffered the greatest impact as it has an export surplus in transactions denominated in dollars, euros and all other foreign currencies. The fall in the yen-equivalent value of the Chubu's net exports has been equivalent to approximately -1.9% of its GRP(Gross Regional Products), by far the greatest experienced by any region in Japan.
3. The Kansai Region including Osaka also has a larger export surplus than the national average, although not as great as that of the Chubu Region, with the result that the impact of the fall in the yen-equivalent value of its foreign currency-denominated imports has been smaller while that of the fall in the yen-equivalent value of its foreign currency-denominated exports has been greater. The fall in the value of the Kansai's net exports due to the change in yen conversion rates has been equivalent to approximately -0.1% of its GRP.
4. The Kanto Region including Tokyo has the largest concentration of non-manufacturing industries in Japan and export-related businesses account for a smaller proportion of the whole than they do in the Chubu or Kansai regions. As the Kanto also has the largest population of any region in Japan, it has a correspondingly high level of imports. For this reason, the fall in the yen-equivalent value of its foreign currency-denominated imports has exceeded the fall in the yen-equivalent value of its foreign currency-denominated exports, and the value of its net exports has grown by approximately 0.5% of GRP.
5. The impact of the fall in the yen-equivalent value of foreign currency-denominated imports has also been considerable in the Chugoku, Kyushu and other regions, and the change in conversion rates due to the strengthening of the yen has caused the value of their net exports to increase by approximately 0.4-0.5% of GRP.
6. At times when the value of the yen is rising, simply focusing on "exchange rate losses" and emphasizing the negative aspects by no means gives a full picture. On the other hand, even if a stronger yen means that subtracting the change in the yen-equivalent value of foreign currency-denominated imports from the change in the yen-equivalent value of foreign currency-denominated exports results in a positive figure, the knock-on effects on incomes, and consequently on demand, means that the positive aspects do not necessarily outweigh the negative ones. It is highly likely that the fall in the yen-equivalent value of exports, which chiefly affects export-related businesses, will lead to a decline in business performance and a fall in capital investment, but it is less certain to what extent consumer spending and capital investment will be boosted by the effects of the fall in the yen-equivalent value of imports, which are spread thinly across the household and business sectors through being passed on to domestic prices.
7. In summary, from a regional perspective, if the Chubu and Kansai regions, which were symbolic of Japan's export- and business-led economic recovery, start to show stronger signs of deceleration, the key question will be what scale of benefits to the economy can be expected in other regions, where the balance of the changes in yen-equivalent values is positive, and how far will these benefits compensate for the slowdown in the Chubu and Kansai? Here, too, there is much uncertainty.
8. While it would be inappropriate to focus solely on the negative impact of the strengthening of the yen, its positive impact cannot be described as strong. Japan should not set too much store by the boost to incomes provided by the fall in the yen-equivalent value of imports, but it is important that steps be taken, at the very least, to spread the "strong yen exchange gains" and allow a wider sharing of the benefits of their underpinning effect.

For more information on the content of this report, please contact Kiyoshi Yoshimoto , the Japan Research Institute, Limited.