Japan’s turn to China as a primary export market

According to the Financial Times, “China replaced the US as Japan’s biggest export market last year(2009)”.(1) Here’s a chart from RIETI showing the relative shares of Japan’s total exports:

It’s remarkable that the proportion of exports to the USA has practically halved in ten years.  Figures from Japan’s Ministry of Finance show that Japan actually had a trade deficit with China in 2009, while maintaining a trade surplus with the US.(2)  This result would be consistent with the idea that Japanese companies source components from China for products that are in part then exported to the rest of the world.

This shift might cause the focus of Japan’s monetary authorities to switch somewhat regarding foreign exchange matters.   The dollar/yen rate will be a concern more for the potential effect on Japan’s holdings of US Treasury debt than for its effect on exports to the US.  Ending the yuan peg by the PRC and the likely resulting appreciation versus the dollar would have the effect of increasing the costs to Japanese manufacturers of parts sourced in China but would also increase the purchasing power for Chinese buyers of Japan’s finished goods.    At the same time, Japanese manufacturers would be squeezed by the increased cost of components from China for products shipped to the USA given that the yen/dollar exchange rate remained stable.  Increasing exports to China would be a logical priority for Japan’s economic policymakers.

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