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Compared to labor migration, trade and direct investment is an area where globalization takes place relatively easily, but it is not advancing uniformly. The discussion will begin with a look at the relationship between Japan's economy and industry under these circumstances. One of the distinctive changes in trade in the past 30 years is that the biggest trading partner shifted from being the US to the East Asian region Figure With respect to merchandise trade, or the total of exports and imports, Asia surpassed the US as a trading partner after and China by itself exceeded the US with respect to imports in Regarding export items, the machinery and equipment-related share grew substantially as a result of increased exports of high value-added manufactured goods.
Meanwhile, concerning import items, raw materials were replaced with intermediate goods and products, and imports consisted of products with relatively lower added value compared to exports. An underlying factor is the increase in the number of people who traveled abroad due to the appreciation of the yen in the latter half of the s.
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In addition, Japan received greater payments from royalties and license fees, etc. The net balance was positive in As explained above, it is evident that on the trade front, i Japan's merchandise trade has shifted its focus from the US to the East Asian region, and ii Japan's industrial structure has advanced in terms of the export and import items and technology trade, etc. With regard to outward direct investment, there was a shift from investment aimed at securing markets in the s to s to increased overseas expansion of manufacturing in response to the trade friction and appreciation of the yen in the late s.
Beginning in the s, growth was evident in investment resulting from greater vertical specialization in the East Asian region, mainly in transport equipment and electrical machinery, as well as investment aimed at market reorganization, primarily in financial institutions Figure One feature in recent years has been that the amount of investment for each case has been rising. In contrast, investment in the European region has been on an upward trend since around , especially in finance and insurance and transport equipment, but this is presumably investment toward an integrated European market and transport equipment exports to the Eastern and Central European regions.
It is apparent that the amount of inward direct investment is extremely small compared to outward direct investment Figure cited above. In Japan's case, this is an indication that in many industries restrictions are imposed on investment from foreign companies.
Currently, the amount of inward direct investment is nearly half that of outward direct investment. On a regional basis, investment from the North American and European regions was significant throughout the s and the amount of investment for each case has been rising. Although most of the investment is in the machinery and equipment industry, deregulation and financial reorganization in recent years have contributed to conspicuous growth in chemicals pharmaceuticals , finance and insurance and telecommunications, etc.
Bearing in mind the above, Section 2 will analyze the issues concerning the shift in the focus of trade and outward direct investment from the US to the East Asian region. Section 4 will examine the current situation and issues involving inward direct investment. Meanwhile, the liberalization of short-term money markets and capital markets, which leads to the lifting of bans on lending and borrowing in foreign currency, was delayed about 20 years and progress was finally achieved between the s and s.
Nonetheless, it appears that international financial and capital transactions have not been fully activated in Japan except during the bubble economy period in the late s. The reasons for the lack of dynamism are as follows. The first reason is because overseas asset management was not an option for Japanese households until quite recently. More than half of the financial assets directly held by households are maintained in the form of bank deposits and postal savings. Management using foreign currency deposits of recent years remains at a low level overall.
The second reason is that the interest rate of borrowing from overseas was high and fund demand in the corporate sector was weak due to economic stagnation and the excess debt problem, etc. The third reason is that international activity appears to be dwindling overall. For example, financial institutions are withdrawing their overseas business centers in order to deal with the disposal of non-performing loans and other issues.
The fourth reason is that domestic institutional investors including life insurance companies refrained from conducting international capital transactions. This was because of the high risk that the investment value would decline after foreign investment bonds were converted into yen given the continued appreciation of the yen beginning in the late s. However, foreign bond investment has been increasing recently since domestic interest rates are low.
Despite these circumstances in Japan, investment from overseas to Japan has soared. For instance, the percentage of foreign investors in Japan's stock market rose in the late s.
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This figure exceeds the percentage of foreign investors in the US stock market 7. This is lower than the percentage of foreign investors in the US government bond market Furthermore, the proportion of yen-denominated trade in Japan rose for both exports and imports until around The major reason Japan's international financial and capital transactions, except for those in the stock market, have not been fully activated is due to the low interest rate, which is a result of the long-stagnant Japanese economy.
Financial and capital transactions are closely linked to the level of economic activity, which in turn is reflected in interest rates. Therefore, it is important to revitalize the Japanese economy and ensure a high expected rate of return in yen asset investment. To this end, it is first crucial to put the Japanese economy firmly back on a path of sustainable growth. The former indicator will be called "trade openness" and the latter "financial openness. Firstly, trade openness increased in Japan and Europe from to This was the effect of the second oil shock and the ensuing reverse oil shock.
In other words, the amount of imports increased as a result of rising oil prices during this period. This was not because of any particular advancement of trade openness. Secondly, trade openness and financial openness increased in Europe beginning in This is believed to be the result of economic recovery and expanded trade and investment within Europe, brought about by the establishment of the European Union EU in with the Maastricht Treaty and the introduction of the single currency, the euro, in Thirdly, trade openness in the US rose gradually from the late s.
Meanwhile, the growth of financial openness appears to have been caused by the entry into force of the North American Free Trade Agreement NAFTA in as well as the boom in securities investment toward newly industrializing countries NICs. Financial openness subsequently plummeted due to the Asian financial crisis that occurred in and the flow of funds to domestic IT investment in Although the level of financial openness in Japan surpassed the level in the US during the bubble economy period in the late s, economic activity was not as dynamic in Japan compared to European and North American countries after the collapse of the bubble economy.
It appears that foreign bond investment in European and American countries, brought about by the lack of lucrative investment opportunities in the domestic markets, is contributing to the recent growth in financial openness. As far as these measures of trade openness and financial openness are concerned, it seems that Japan's globalization is not as advanced as in European and North American countries.
On the other hand, it is possible that Japan missed the opportunity to harness the benefits that can be reaped from globalization due to the prolonged economic stagnation resulting from the delay in dealing with the collapse of the bubble economy. It is only recently that steady economic recovery has finally been realized without the economy becoming more dependent on public spending. There is a need to consider how such missed opportunities in the s can be regained in order to improve the sustainability of economic growth led by private demand.
This is suggestive of how important it is for Japan to promote economic partnerships and structural reform in a manner consistent with economic partnerships so it can enjoy the benefits of globalization along with other relevant countries and contribute to global economic development. This issue will be addressed in Sections 3 and 4. Section 2 will reveal that the macroeconomic response to exchange rate changes has altered after the s and has had a greater effect on diminishing the surplus in the balance of payments for goods and services.
Next, the focus will be on the overseas production development of exporting companies and the process of change in corporate activity will be specifically examined. As a result, it was discovered that vertical intra-industry trade within the East Asian region was established as a result of Japanese companies' overseas development centered on the East Asian region.
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Furthermore, as for the impact that globalization has had on households, prices of daily necessities dropped significantly due to the remarkable increase in imports, which benefited households. However, it is clear that the decrease in exports and increase in imports influenced the decline in employment in Japan. Section 3 will explore the question of whether to handle regional economic partnerships with a focus on East Asia.
A simmering trade war between China and the United States could easily boil over. Countries across Europe are shutting their borders to immigrants. In trade, the transformation was signaled by the creation of the World Trade Organization, in The WTO not only made it harder for countries to shield themselves from international competition but also reached into policy areas that international trade rules had not previously touched: agriculture, services, intellectual property, industrial policy, and health and sanitary regulations.
Even more ambitious regional trade deals, such as the North American Free Trade Agreement, took off around the same time.
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Pushed by the United States and global organizations such as the International Monetary Fund and the Organization for Economic Cooperation and Development, countries freed up vast quantities of short-term finance to slosh across borders in search of higher returns. At the time, these changes seemed to be based on sound economics.
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Openness to trade would lead economies to allocate their resources to where they would be the most productive. Capital would flow from the countries where it was plentiful to the countries where it was needed.
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