Sam's Economics Blog

China beats US as Japan’s trade partner

Sam’s bedtime reading? The topics of today’s Blog are covered in LiveEcon:

Chapter 13 on the foreign exchange market and the BP curve.
Chapter 14 on the IS-LM model in the open economy.

China has officially displaced the US as Japan’s largest trading partner, figures revealed on Wednesday. Trade with China soared in the fiscal year ended last month, with Japanese ex­ports growing 21 per cent, almost double the growth of ex­ports to the US. The record China figure reflected high demand for Japanese manufacturing inputs and greater shipments of finished products. This comes as Japan’s trade surplus soared 16.4 per cent, following a 31.4 per cent drop the previous year. Japan’s trade surplus was particularly high in March, growing 73.9 per cent, to Y1,633.5bn ($13.8bn, €10bn, £6.9bn), as imports slowed sharply while exports remained strong, especially in the car sector. The strong figures were supported by lower oil prices and the weak yen. Japan’s trade surplus is expected to continue on a firming trend, despite slower economic activity in the US.

Read the full story at:
http://www.ft.com/cms/s/a194348e-f340-11db-9845-000b5df10621.html

According to the Mundel-Fleming model, the major determinants of a country’s exports are the level of foreign national income and the exchange rate (defined as the price of the domestic economy’s currency in terms of one unit of foreign currency). In the case of Japan, the rapid economic expansion experienced by China in recent years has led to an increase in the amount of Japanese exports to that country. This has been aided by the weak yen, which has made the foreign currency price of Japanese goods lower relative to the price of goods in Japan’s major trading partners. The weakness of the yen has triggered concern in some quarters but the international reaction so far has been subdued, as it is widely accepted that an appreciation of the yen would potentially jeopardise the recent signs of economic recovery in Japan.

The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. For example, Chapters 13 and 14 outline what are the determinants of a country’s current account and illustrate the effect of changes in foreign incomes and exchange rates on the trade balance and overall level of national income. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.