VERZOSA, Feliciano Jr. A.

International Trade Law

Friday 7:30-9:30
Atty. Ever Rose Higuit
Japans Export Slowdown
Introduction
Toyota, Honda, Nissan, Daiso Japan, 99 store, and the like, wherever we go,
we see Japan Imports, Made from Japan, imported from Japan. Products like
automobiles ranging from the brands of Toyota, Honda, Nissan, Mazda and Subaru
have been in the market for as long as we can imagine. That being said, Japan has
been a major importation giant from the 60s up until today, and it has contributed to
their economic growth as a nation.
A bit of a background of the Japanese Trade Policy is Japanese exports grew
rapidly in the 1960s and 1970s, but growth slowed considerably during the 1980s.
Over these decades, both the composition and the reputation of products from Japan
changed profoundly.
Because of the success of certain exports, Japan is often viewed as a heavily
export-dependent nation. As an example, just under half of all automobiles produced
in Japan were exported.
The growth of Japanese exports during the 1960s and 1970s was truly
phenomenal. Beginning in 1960 at US$4.1 billion, merchandise exports grew at an
average annual rate of 16.9% in the 1960s and at an average annual rate of 21% in
the 1970s. From 1981 to 1988, however, export growth averaged 11.3% per year,
about one-half the level of the 1970s. By 1990 merchandise exports reached
US$286.9 billion.
During the 1950s, Japanese export products had a reputation for poor quality.
However, this image changed dramatically during the 1970s. Japanese steel,
ships, watches, television receivers, automobiles, semiconductors, and many other
goods developed a reputation for being manufactured to high standards and under
strict quality control. The Japanese were the acknowledged world leaders for quality
and design in the 1980s for some of these products. This rise in product quality also
increased demand for Japanese exports.
The push behind Japan's exports came from manufacturers. Many recognized
that to reach efficient levels of production they needed to adopt a global approach.
1

Manufacturers concentrated on the domestic market (often protected from foreign

products) until they reached internationally competitive levels and domestic markets
were saturated. Often helped by the large general trading companies, manufacturers
aggressively attacked foreign markets when they felt able to compete globally.
Exports included a wide variety of products, virtually all of which were
processed to some degree. After the war, the composition of exports shifted through
technological progression. Primary products, light manufactures, and crude items,
which predominated during the 1950s, were gradually eclipsed by heavy industrial
goods, complex machinery and equipment, and consumer durables, which required
large capital investments and advanced technology to produce. 1
Although Japan has been the force to be reckoned with in the field of exportation,
however, it has put its feet slightly on its brakes and have been experiencing a
somewhat slowdown in its exports to other countries due to the rise of the Peoples
Republic of China as one of the Major exporters of imitated goods.
Background of the Study
The questions that the researcher have encountered on the said topic is that
what is the cause, or causes of Japans export slowdown? Has it economically
affected the Country?
In my opinion, the cause of Japans economic slowdown is the entry of China
in the exporting ring. Through the years, most of the manufacturing companies are
transferring to China due to their floor cost labor, meaning laborers are paid at the
lowest rate that the State allows. Numerous articles I have read claims that nonskilled factory workers receive around $100 2 a month, or around Php 4000
Php5000 depending on the Foreign Exchange.
Now, if I were a manufacturing company in the United states that pays around
$10 an hour for a factory worker, Id transfer my factory in China due to its low cost
labor.
Moreover, the rise of Chinese products that are obviously fake or imitated from
other manufacturers have hurt or caused injury to the exportation business not only
to Japan, but also to other ASEAN countries that are in direct competition with the
Peoples Republic of China.

1 https://en.wikipedia.org/wiki/Trade_policy_of_Japan
2 http://www.globalresearch.ca/china-the-largest-cheap-labor-factory-in-theworld/5431349
2

However, I opine that such slowdown in the exportation of Japan may have
serious consequences to the economy. In an Article published, which said that But
it's not clear his government can recover from the latest news about sputtering
exports, which fell 4.4 percent from the previous quarter.3
Analysis
Now, articles published online have pointed that Japans export have been in a sharp
slowdown since China have emerged as an economic powerhouse not only in
ASEAN countries but in the whole world.
Japan's annual export growth slowed to a crawl in September as shrinking
sales to China hurt the volume of shipments, raising fears that weak overseas
demand may have pushed the economy into recession.
An article published by Reuters stated that:
Ministry of Finance data showed exports rose just 0.6 percent in the year to
September, against a 3.4 percent gain expected by economists in a Reuters poll.
That was the slowest growth since August last year, following the prior month's
3.1 percent gain. The weak yen helped increase the value of exports, but volume fell
3.9 percent, the third straight month recording an annual decline.
Wednesday's data was the first major indicator for September and is part of
the calculation of third quarter gross domestic product. A third quarter contraction
would put Japan into recession, following the second quarter's negative GDP result,
and could force policy makers to offer further stimulus. "Given this data, the economy
probably contracted about an annualized 0.5 percent in July-September. External
demand, capital spending and inventory investment were a likely drag, while
consumption picked up," said Koya Miyamae, senior economist at SMBC Nikko
Securities.
China's slowdown and soft domestic demand weighed on factory output and
the broader economy, although the Bank of Japan saw the effects of China's
slowdown as limited for now, sticking to its rosy growth outlook. Still, weak indicators
will keep the central bank under pressure to ease policy again to hit its ambitious 2
percent inflation target next year. Some analysts expect the BOJ to move at its Oct.
30 monetary meeting, when it also issues long-term economic and price projections.
"Weak exports were within the BOJ's expectations so this data alone could not be a
3 http://www.bloombergview.com/articles/2015-08-17/japan-exports-its-way-toirrelevance
3

trigger. But there's no doubt that pressure will mount on the BOJ to act if weakness
persists," said Taro Saito, senior economist at NLI Research Institute. 4
Another article by Bloomberg5 also foresaw the decline on Japanese exports and the
causes of its slow growth:
Japans exports grew at the slowest pace in more than a year in September,
with a drop in shipments to Asia all but overwhelming gains in sales to Europe and
the U.S The trade data are one of the most crucial economic indicators before the
Bank of Japan meets on Oct. 30 to consider whether the nation needs more
monetary stimulus to stoke inflation and economic activity. Exports to China, India,
Indonesia, Thailand and Malaysia all fell as the slowdown in Chinas economy
sapped demand across Asia.
The value of Japanese shipments rose just 0.6 percent in September from a
year earlier, marking the third straight month of waning growth, the finance ministry
reported Wednesday. Economists surveyed by Bloomberg had expected a 3.8
percent increase. The value of imports sank more than 11 percent, underscoring a
lack of demand in Japans domestic economy as well as falling oil prices. The
numbers confirm that Japans economy is in a soft patch, said Taro Saito, the
director of economic research at NLI Research Institute in Tokyo. Its too optimistic
for the central bank and the government to be saying the recovery is continuing. The
economy contracted in the second quarter and a slump in industrial production in
August prompted some economists to predict Japan went backwards again in the
third quarter.
The weakness in exports in September was also apparent when measure by
the volume of shipments, with a 3.9 percent decline from a year earlier. A graph from
the said article provided the export volume of japan from a 3 year period show the
steep decline of products that are being exported from Japan, to wit:

4 http://www.reuters.com/article/2015/10/21/us-japan-economy-tradeidUSKCN0SE30T20151021#w2Si2HsqDXDfWxgt.97
5 http://www.bloomberg.com/news/articles/2015-10-21/japanese-exports-grow-atthe-slowest-pace-in-more-than-a-year
4

Another article also proves that the slowdown of exports in Japan have
affected the Bank of Japan:
Poor data for exports and industrial output have the potential to force the Bank
of Japan into bolstering stimulus later this month, said a former chief economist for
the BOJ. Weak production could destroy the picture the central bank has presented
of an economy that is poised to improve, said Hideo Hayakawa, who went on to be
an executive director at the central bank before he retired in 2013.
While data so far indicate the BOJ may be able to leave monetary policy
unchanged on Oct. 30, Hayakawa said in an interview in Tokyo on Friday that
policymakers will pay great attention to trade figures to be released next week and
then to output numbers due a day before the board meets.
Gov. Haruhiko Kuroda has been consistently upbeat about inflation, even as
domestic consumption, foreign demand and production have disappointed some
observers. About 40 percent of economists surveyed by Bloomberg forecast the BOJ
will increase stimulus at the Oct. 30 meeting, when it also provides updates on the
outlook for inflation and economic growth.

Production and exports are key for the bank to gauge if the economy is finally
heading toward recovery after stagnation in the second and third quarters, said
Hayakawa, who was chief economist from 2001 to 2007. Gross domestic product
shrank in the April-June quarter, and is forecast to rebound just 0.6 percent in the
three months through September. Two major culprits for Japans surprisingly weak
expansion are a low potential growth rate and a lack of corporate spending on
investment and wages, said Hayakawa, who is now at the Fujitsu Research Institute.
Prime Minister Shinzo Abe has chided companies for their insufficient investment in
people and technology at time when some of them are making record profits.
The BOJ will probably lower its inflation forecast for both this year and next at
the meeting at the end of the month, Hayakawa said. He estimates the bank will
forecast CPI of 0.3 percent to 0.4 percent for this fiscal year and 1.6 percent to 1.7
percent for the following 12 months. That is far from the BOJs target of 2 percent,
which Kuroda says will be reached around the six months starting in April next year.
Still, the bank can put the blame on oil and say the inflation trend is rising,
Hayakawa said. Consumer prices excluding fresh food dropped in August for the first
time since April 2013. Stripping out energy as well, they actually rose 1.1 percent.
With prospects dimming for reaching the inflation target anytime soon, the BOJ
should switch from its unorthodox asset purchasing program to a policy focused on
interest rates, he said.6
For the past few weeks, the decline in Chinas economy has also affected
Japans export growth due to the fact that most of the Exports made by Japan is
through China and if Chinas demands weaken, then so too shall Japans exports.
Another article by Bloomberg7 shows the same:
Japans export growth slowed for a second month, signaling waning overseas
support for an economy thats already beset by weakness at home. The value of
shipments rose 3.1 percent in August from a year earlier, compared with estimates
compiled by Bloomberg for a 4.3 percent increase. Imports dropped 3.1 percent,
leaving a deficit of 569.7 billion yen ($4.7 billion), according the figures released by
the finance ministry Thursday.
Exports to China fell 4.6 percent as a market rout and economic slowdown in
Japans biggest trading partner sapped demand. Disappointing data in recent months
has raised concern on the outlook for economic growth after a contracted last quarter
and an inflation rate thats slid back to zero.
6 http://www.japantimes.co.jp/news/2015/10/19/business/economy-business/exboj-exec-says-further-easing-hinges-on-output-export-data/#.VmIRuHarSM9
7 http://www.bloomberg.com/news/articles/2015-09-17/japan-s-exports-add-toabe-s-woes-as-china-slowdown-saps-demand
6

Focus continues to be on how much growth will rebound from July to

September, according to Koya Miyamae, an economist at SMBC Nikko Securities
Inc. Miyamae, in note before the data release, said a second consecutive drop in
gross domestic product would make further stimulus from the government and Bank
of Japan more likely.The yen was little changed at 120.60 per dollar at 9:09 a.m. in
Tokyo while the Topix stock index advanced 0.9 percent.
The export figures come on the heels of a cut to Japans long-term credit
rating Wednesday by Standard & Poors, which said there was little chance of Prime
Minister Shinzo Abes strategy turning around the poor outlook for economic growth
and inflation over the next few years.
An article published in the wall street journal 8 also says the same regarding
the slow export growth of Japan and the fear of another rescission:
Japanese exports to China fell for a second straight month in September,
further evidence that the mainlands slowdown is buffeting Japans sputtering
economy. Fading demand in Chinawhere the growth rate hit a six-year low in the
third quarterhas sapped manufacturing activity in Japan, which faces a possible
second recession in as many years, while taking a toll on Japanese companies.
Exports to ChinaJapans second-largest marketfell 3.5% in September
from a year earlier, after a 4.6% decline in August, Japanese government data
showed. Total export growth slowed to a 13-month low of 0.6%, well below a 3.4%
increase expected by economists surveyed by The Wall Street Journal. The latest
export data came amid intense speculation about whether the Bank of Japanwill
undertake additional monetary easing at its policy meeting at the end of the month.
Japanese industrial production fell in July and August, while the primary measure of
inflation hit negative territory in August for the first time in more than two years,
fueling expectations of additional fiscal and monetary stimulus.
BOJ officials have played down the effects of slowing growth in China,
stressing signs of recovery in advanced economies. Yet export volumes to the U.S.
fell 4.7% in September, a fifth straight monthly decline, due to weaker demand for
auto parts, visual equipment and semiconductors. The volume of exports to Asia also
dropped in September, by 4.2%, a third consecutive monthly decline. Weaker
Chinese demand for products such as steel, computers and audio equipment is
forcing Japanese companies to cut production and profit forecasts.
Industrial-machine maker Tsugami Corp. last week slashed its forecast for
group net profit for the six months through September by more than half, to 680
8 http://www.wsj.com/articles/japans-export-growth-slows-as-china-stumbles1445424366
7

million ($5.7 million) from 2.3 billion ($19.2 million). At its factories in China, Tsugami
has reduced its monthly output of automatic lathewhich are used to create parts for
smartphones and autosby more than half in July, a public relations officer said.
Kobe Steel Ltd., which makes steel, aluminum and construction machinery, late last
month cut its projection for group net profit for the year ending March by more than
half, to 25 billion.
Broader deterioration in Japanese earnings could shake the BOJs confidence
in reaching its 2% inflation target, which has partly been based on expectations
that record-breaking profit would drive capital spending and wage increases. BOJ
Gov. Haruhiko Kuroda acknowledged during a speech in Osaka late last month that
the central bank wouldnt hit its price target if companies didnt put more money into
workers pockets.
It is possible Japans economy shrank again in the third quarter at about the
same rate as the 1.2% contraction seen in the second, Mr. Nagahama said. That
would be the second technical recession in two years for Japan. Still, the BOJ may
hold its fire this month, partly because of an accelerated gain in recent months in a
gauge of consumer prices that excludes both energy and fresh food, Mr. Nagahama
said. But that would increase the risk of the central bank, which has previously
emphasized the need for pre-emptive action, falling behind the curve in its efforts to
stoke inflation expectations, he said.
Furthermore, a graph from the same article shows the fall of Japanese exports
to China, to wit:

Another article published by Global Trade Review 9 which dwells on the China
slowdown that affected the ASEAN economy, particularly japan:
Chinas slowdown continued to have a drag on Japans exports, which rose by
just 0.6% in September, the weakest growth for more than a year. While the value of
exports rose due to a weakened yen one of the cornerstones of Abenomics the
volume fell by 3.9%, which represents a third straight decline. Perhaps the headline
figure is the 3.5% fall in shipments to China, which is mainly due to falling sales in
automotive parts and energy shipments.
Exports to the rest of Asia fell 0.9%, the first drop to the region for seven
months according to the Japanese Ministry of Finance, pointing to sluggish economic
growth across the continent. Perhaps symbolically, given the breakthrough in
negotiations for the Trans-Pacific Partnership (TPP) this month, exports to the US
were up 10.4%, mainly due to increased car sales. This points to a recovery in
consumption in the US, but in pure volume terms, the trade flow was down, again
emphasizing the impact a weak yen is having on Japans trade sector.
Furthermore, the continued slowdown in China raises questions as to the
economic wellbeing of the North of Asia. Much has been written about the exposure
9 http://www.gtreview.com/news/asia/china-slowdown-hits-japans-exports/
9

of commodity exporters in the south (Malaysia, Indonesia), but the 5.5% growth
forecast by the IMF for Japan, South Korea, Taiwan and Hong Kong is the lowest
since 2008.Export growth fell short of expectations in September, and the trade
deficit narrowed much less than anticipated, says Marcel Thieliant, Japan analyst at
Capital Economics. Admittedly, the headline figures masked a rebound in export
volumes, which rose 1.9% month on month last month. However, import volumes
jumped by a larger 3.7%. The upshot is that import volumes once again outpaced
export volumes last quarter. We estimate that net trade shaved off as much as 0.3
percentage points from GDP growth in Q3.
So while Abenomics may arguably show some positive results in pure value
terms, in real terms it isnt, with Japans exports sector still disappointing analysts and
officials alike. If the weakness persists, pressure for a further intervention from the
Bank of Japan will rise, with the central bank already facing some pressure to ease
policy in order to boost exports and inflation.
Due to the weakening of the economy of China, other countries like Japan are
threatened to go into recession. Thus, Articles from various websites have opined
that Japan is likely to go down the drain and go into recession due to its slow growth.
In an article published by CNBC.com10 stated that:
Japan's annual export growth slowed for the third straight month in
September, a worrying sign that overseas sales continued to drag on growth last
quarter, adding to fears of a recession.
Ministry of Finance data showed exports rose just 0.6 percent in the year to
September, against a 3.4 percent gain expected by economists in a Reuters poll.That
was the slowest growth since August last year and followed a 3.1 percent gain in
August 2015. Compared with last month seasonally-adjusted shipments declined 1.7
percent.
Wednesday's data is the first major indicator for September and is part of the
calculation of third quarter gross domestic product. A third quarter contraction would
put Japan into recession, given the second quarter's negative GDP data. China's
slowdown and soft domestic demand weighed on factory output and the broader
economy, although the Bank of Japan saw the effects of China's slowdown were
limited for now, as it sticks to its rosy growth outlook, but that may change at the
BOJ's monetary policy review on Oct. 30. Data out on Monday showed China's
economic growth dipped below 7 percent for the first time since the global financial
crisis despite a barrage of stimulus measures.

10 http://www.cnbc.com/2015/10/20/japan-export-growth-down-in-septembersparks-recession-fears.html
10

Analysts worry that a China-led global slowdown could drag down the
Japanese economy, keeping Tokyo under pressure to deploy fresh monetary and
fiscal stimulus in the coming months. Exports to China fell 3.5 percent in September
from a year earlier, down for a second straight month and weighed by falling
shipments of light oil and car parts. Shipments to Asia - which account for about a
half of Japan's overall exports - fell 0.9 percent in the year to September. That was
the first decline in seven months.
Exports to the United States, a major buyer of Japanese products, rose 10.4
percent in September, led by brisk shipments of cars. That followed a 11.1 percent
annual gain in August. Reflecting ongoing falls in oil prices, imports fell 11.1 percent
in the year to September, largely in line with economists' estimates. The trade
balance was a deficit of 114.5 billion yen ($955 million), versus an 84.4 billion yen
surplus seen by economists, marking six straight months of deficits.
This article published by Nikkei 11 further expounds the theory that japan may
fall into recession due to its weakening exports:
Japan's exports in October fell for the first time in more than a year, stoking
worries the world's third-largest economy may struggle to recover from a recession
as weak overseas demand dims the trade outlook. Ministry of Finance data showed
on Thursday that exports fell 2.1 percent in October from a year earlier, matching
economists' median estimate. On the month, exports rose 0.6 percent, marking the
first increase in four months. It was the first annual decline since August 2014 when a
decline in U.S.-bound exports hurt overall shipments.
The soft figures follow just days after third-quarter data showed Japan
slipped into its fourth recession in five years, casting doubt about the effectiveness
Prime Minister Shinzo Abe's reflationary policies known as "Abenomics". The run of
weak data add to doubts the Bank of Japan will be able to accelerate inflation to its
ambitious 2 percent target in the latter half of next fiscal year to March 2017.
Nonetheless, the central bank is widely expected to keep monetary policy steady at
its rate review that ends on Thursday.
Analysts expect a modest rebound in the economy over the current
October-December quarter. "Exports show signs of bottoming out, but given declining
export volume, they are unlikely to become a driver of growth in the current quarter
as effects of China's slowdown and falling commodity prices are spreading to other
countries," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.
A slowdown in China, Asia's locomotive, has chilled exports and economic
growth across many of the region's trade-reliant economies. Japanese manufacturers
11 http://asia.nikkei.com/Politics-Economy/Economy/Japan-exports-fall-couldweigh-on-recovery-from-recession
11

have also been hit by the downturn in the world's No. 2 economy. The MOF data
showed China-bound exports fell 3.6 percent year-on-year in October, down for a
third straight month on falling shipments of items such as steel and car parts.
Finally, an article published by Vox.com 12 gave an in-depth analysis on why Japan is
going to recession. Other than exports, these factors have had an effect in Japans
slowdown:
The Japanese economy is shrinking because Abe already succeeded in fixing
Japan's unemployment problem. Japan is simply in an odd situation where low and
falling levels of unemployment aren't good enough to ensure economic growth.
First things first Japan's unemployment rate has tumbled, reaching a low
point it never achieved during the previous global expansion phase:

More Japanese people are in the labor force

And unlike in the United States, the labor force participation rate of working-age
adults has soared to a record level:

12 http://www.vox.com/2015/11/17/9749264/japan-recession-abenomics
12

Abenomics, in other words, has accomplished exactly what macroeconomic

stabilization policy is supposed to accomplish while millions of able-bodied
Americans and Europeans sit idly, Japan has achieved something close to full
employment.
So why is the Japanese economy shrinking? Well, it's pretty simple. The country is
running out of people:

13

In the context of a working-age population that's shrinking 1.5 percent a year,

an economy that is "only" shrinking at 0.8 percent per year is actually doing okay. If
you define a recession as two consecutive quarters of negative GDP growth, then a
country like Japan, where the population is shrinking, is going to tumble into
recession basically every time anything even slightly bad happens. You might or
might not think this is a problem, but either way it's clearly not something monetary
policy could solve
For a while, monetary policy was effective at solving the problem of
unemployment, which helped make up for the declining working-age population. But
now that Japan has achieved full employment, only a surge of people or a sustained
increase in the productivity growth rate can generate consistent positive GDP
numbers.
Can we be sure that Abenomics is responsible for the recovery in the
Japanese labor force? It's hard to prove anything conclusively in macroeconomics.
But we can see that the Japanese price level has stopped falling ever since Abe
came to office determined to make it stop falling:

14

In tandem with the return of inflation, nominal GDP growth which is key to
ensuring full employment has set in:

15

Critics of monetary stimulus in the United States and Europe often note that
it's not a panacea for every economic problem that exists. Japan is a living, breathing
example of what that slogan gets right and what it gets wrong. By deploying
monetary stimulus Japan was able to boost inflation and nominal GDP, increasing
demand for labor, reducing the unemployment rate, and increasing the labor force
participation rate. Relative to a years-long spell of mass unemployment, that's pretty
good! But other aspects of the fundamental economic situation matter, too. In Japan's
case, demographics is now destiny.
Conclusion
Japan has been an economic giant after the 2 nd World War, due to its massive taste
in exportation. Cars, tools, and the like which are used in our daily lives, Japan can
export, and at a low price. Thats why we have here in the Philippines Daiso Japan,
99 store, Auto Supplies which import Japanese Factory parts. However, the decline
in their exportation have significantly affected their economy and may enter into
recession if their government has no other way to make it work.
China has been a moving factor in Japans economic slowdown due to the fact
that it has become an economic dragon not only in ASEAN countries, but in the
whole wide world, and its decline would also affect the economy of other states it
trades with.

16