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Answer one question from this section.
1. Study the extract below and answer the questions that follow.
Japan in rst trade gap since 1963
Japan’s current account surplus fell 85.5 % in November 2011 from a year earlier to
138.5 billion Japanese yen (Japan’s currency) ($1.80 billion), the Ministry of Finance said.
In 2011, Japan recorded its rst decit in its balance of trade in goods since 1963.
The appreciation of the Japanese yen against the dollar has reduced Japan’s current account
surplus. The Japanese yen gained 8.5 % against the dollar in the 12 months since January 2011.
The currency has acquired a new and unusual status as a safe haven, reinforced by the eurozone
debt crisis since international investors are concerned about the single European currency.
It is estimated that a 1 % gain in the Japanese yen could reduce the export volumes by 0.34 %,
slowing down growth for a country that has relied on overseas demand to maintain its recovery
from March 2011’s earthquake. To stop the trade in goods decit from getting worse, the world
economy would have to grow by 4 % and the value of the Japanese yen would have to fall
by 5 %. It is unlikely that this will happen.
With their rapidly aging and decreasing population, Japanese rms face severe challenges
and have little choice but to look abroad for growth. The Japanese yen’s appreciation to
record highs against the euro and relative strength against the US dollar has led to a boom in
outward foreign direct investment (FDI). Exporters are transferring their operations from
Japan to other economies, where parts and labour costs are lower.
Japan’s current account surplus could move into a decit sooner than 2015 if more companies
shift production abroad to combat losses from a strong Japanese yen. In 2011 Japanese rms
purchased a record number of rms across the rest of Asia. Worldwide the number of Japanese
purchases reached 455, only just short of its record of 463 in 1990.
Japanese rms are also acquiring shares in natural resource companies. Mitsubishi spent
more than $5 billion buying a quarter of mining giant Anglo-American’s Chilean copper unit,
and trading group Itochu bought a $1 billion stake in a US oil and gas rm.
The Japanese Prime Minister has encouraged the trend. “We will take advantage of the
appreciating Japanese yen to support Japanese companies in purchasing foreign companies
and acquiring resource interests,” he said.
However, Japanese authorities have signalled there are concerns about a further appreciation
of the Japanese yen. The central bank said last month that it plans to increase the funds
available for currency intervention.
[Source: adapted from www.bloomberg.com, 5 January 2012; www.chinadaily.com.cn, 12 January 2012 and www.channelnewsasia.com]
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