Introduction
According to preliminary balance of payments statistics for April released by the Ministry of Finance on the 8th, Japan recorded a current account surplus of ¥3.9078 trillion, an increase of 64.9% from the same month of the previous year. This marked the 15th consecutive month of current account surplus. The most notable feature this time was that the trade balance shifted from a deficit in the same month last year to a surplus of ¥395.7 billion. Exports increased, driven by electronic components such as semiconductors bound for Asia, while imports also rose due to higher prices for crude oil and naphtha. Even so, the growth in exports outpaced the increase in imports.
Meanwhile, the largest pillar supporting the current account surplus was the primary income balance, which reflects income such as interest and dividends earned from overseas investments. The primary income balance posted a surplus of ¥4.2100 trillion, with direct investment income showing particularly strong growth. The travel balance maintained a surplus of ¥546.5 billion, but the size of the surplus narrowed against the backdrop of a decline in the number of visitors to Japan.
These statistics are highly suggestive when considering how Japan’s ability to “earn abroad” is changing.
The Shift to a Trade Surplus Shows the Resilience of Manufacturing
The first point that deserves attention is that the trade balance turned positive. Exports amounted to ¥10.1081 trillion, up 13.9% from the same month of the previous year. In particular, the increase in electronic components such as semiconductors for Asian markets indicates that Japan’s manufacturing sector still occupies an important position in international supply chains.
In recent years, Japan’s trade balance has often been pushed into deficit by rising resource prices and higher import costs caused by the weaker yen. For that reason, this shift to a surplus can be seen as a positive sign that Japan’s export competitiveness has recovered to some extent.
However, it would be premature to view this simply as the “revival of Japan as a trading nation.” Imports also increased by 9.5% to ¥9.7124 trillion, affected by higher prices for crude oil and naphtha. Because Japan depends on overseas sources for energy and raw materials, its vulnerability to resource prices and geopolitical risks remains unchanged.
In other words, while the latest trade surplus is a positive development, the trade balance could easily deteriorate again if resource prices rise sharply.
The Main Driver of the Current Account Surplus Has Shifted from “Goods” to “Investment Income”
Looking at the current account as a whole, the size of the primary income balance is even more important. The primary income balance posted a surplus of ¥4.2100 trillion, up 15.3% from the same month of the previous year. Within this, direct investment income reached a surplus of ¥2.3081 trillion, an increase of 18.5%.
This means that Japanese companies and financial institutions are earning interest, dividends, and profits from investments they have made overseas. In the past, Japan was strongly associated with the image of a country that earned foreign currency by manufacturing products domestically and exporting them abroad. Today, however, Japan is increasingly taking on the character of an “investment income nation” that earns returns from assets and businesses accumulated overseas.
This change also reflects the maturity of the Japanese economy. As population decline makes it difficult to expect major expansion in the domestic market, earning profits from overseas businesses and overseas investments is important for both companies and the country as a whole.
At the same time, caution is needed regarding a structure that depends heavily on the primary income balance. Overseas investment income is influenced by exchange rates, interest rates, overseas economic conditions, and the political and economic situations of investment destinations. It is also supported in part by returns on overseas assets accumulated in the past, rather than being purely the result of stronger domestic industrial competitiveness.
In that sense, a large current account surplus does not immediately mean that the Japanese economy itself is growing strongly.
Improvement in the Services Balance and the Potential of Intellectual Assets
The services balance recorded a deficit of ¥416.0 billion, but the deficit narrowed by 42.7%. One factor behind this was an increase in receipts for corporate research and development services, partly due to a Japanese pharmaceutical company transferring patent rights overseas.
This point is important when considering the future of the Japanese economy. It is becoming increasingly important for Japan to earn revenue from overseas not only through exports of goods, but also through intangible assets such as technology, intellectual property, research and development, licensing, data, and software.
The transfer of patent rights and the increase in receipts for research and development services show that the technologies and intellectual property held by Japanese companies have international value. In addition to maintaining the competitiveness of manufacturing, how Japan monetizes research outcomes and intellectual property may also affect its future current account balance.
However, transferring intellectual property overseas has two sides: the short-term benefit of securing revenue and the potential downside of giving up sources of future competitiveness. What matters is not simply selling rights, but maximizing revenue as part of an overall intellectual property strategy that includes research and development, securing rights, licensing, and commercialization.
The Shrinking Travel Surplus Shows the Instability of Inbound Tourism
Within the services balance, the travel balance posted a surplus of ¥546.5 billion. Although it continued to secure a large surplus, the size of that surplus shrank by 25.2%. The number of visitors to Japan in April was 3,692,200, down 5.5% from the same month of the previous year. This is said to have been affected by declines in travelers from China and Europe, among other factors.
Inbound tourism has become an important means for the Japanese economy to earn foreign currency. It has ripple effects across a wide range of industries, including accommodation, food and beverage, retail, transportation, and tourist facilities. Spending by visitors to Japan is also important for regional economies.
However, the travel balance is also a field that is easily affected by external conditions. The number of visitors to Japan can fluctuate significantly due to exchange rates, flight availability, international affairs, infectious diseases, economic conditions in other countries, and natural disasters. The latest narrowing of the surplus shows that while inbound tourism is expected to be a growth field, relying too heavily on it also carries risks.
Tourism remains one of Japan’s strengths. Going forward, however, qualitative improvements will become more important, including not only increasing the number of visitors but also extending length of stay, raising spending per visitor, dispersing visitors to regional areas, and improving the value of travel experiences.
How Should We Interpret the Expansion of the Current Account Surplus?
The latest expansion of the current account surplus is positive news for the Japanese economy. The trade balance turned positive, the primary income balance expanded, and the services deficit narrowed. Looking only at the numbers, Japan appears to be earning solidly through transactions with the rest of the world.
However, a closer look at the details also reveals the challenges facing the Japanese economy. The trade balance is susceptible to resource prices, and the travel balance is affected by fluctuations in the number of visitors to Japan. The primary income balance is strong, but dependence on overseas investment income is high, and it does not directly indicate the growth potential of domestic industries.
Therefore, what should be read from these statistics is not a simplistic assessment that “Japan is safe because it is in surplus.” Rather, it is necessary to calmly examine which fields Japan is earning from and which fields carry risks.
How Japan Earns Money Will Be Tested from Here
For the Japanese economy to continue maintaining a stable current account surplus, it needs to strengthen multiple sources of income. In manufacturing, it is important to expand high-value-added fields such as semiconductor-related components. In services, Japan needs to enhance international competitiveness not only in tourism, but also in research and development, intellectual property, digital services, and professional services.
It is also important to consider how earnings from overseas investment can be connected to domestic growth. If profits earned overseas are reinvested in domestic research and development, human resource development, capital investment, and new businesses, they can help improve the competitiveness of the Japanese economy as a whole. Conversely, if overseas investment income merely supports a statistical surplus and does not sufficiently spill over into domestic wages or investment, people’s sense of improvement in their daily lives will remain limited.
The current account surplus is one indicator of the health of the Japanese economy. What truly matters, however, is whether that surplus is high-quality and leads to future growth.
Conclusion
Japan’s current account balance for April posted a surplus of ¥3.9078 trillion, marking the 15th consecutive month of surplus. There were many positive elements, including the shift to a trade surplus, the expansion of the primary income balance, and the improvement in the services balance.
At the same time, the statistics also reveal challenges such as dependence on resource prices, fluctuations in inbound tourism, and a bias toward overseas investment income. These figures show that Japan has the ability to earn from overseas, while also demonstrating that the way it earns is undergoing significant change.
What Japan needs from here is not merely to maintain a current account surplus. It must strengthen its “earning power” in a way that leads to domestic growth and wage increases, while combining goods, services, intellectual property, and investment income. The latest expansion of the current account surplus is an important reference point for considering that direction.