An increase in the national sales tax sent Japan into a recession in the middle half of 2014, but increased exports have Japan poised for growth in the New Year. Japanese exports grew 13% in December from a year prior, while imports only increased 2% over the same period. This growth in exports reduced Japan’s trade deficit, which was at its highest level since data became available in 1979.

The rise in exports is a direct effect of Japanese Prime Minister Shinzo Abe’s monetary policy aimed at driving down the price of the yen. The Yen has dropped 16% against the US dollar in the last year, making labor and production costs relatively cheaper. These lower production costs are encouraging many Japanese manufacturers to produce more of their goods domestically.

Electronics manufacturers, due to their relatively quick turnover cycles, are leading the charge in bringing production back to Japan. Electronic giant Canon, recently revealed plans to raise domestic production from about 40% output by volume to 60%. Sharp, following suit, also released plans to shift some of the production of their air purifiers, refrigerators, and televisions back to Japan. Sony, another leader in the industry, stated that they plan to invest ¥35 billion ($300 million) in Japan in order to increase domestic production of their image sensors. Daiken Industries Ltd., a major producer of air conditioners is shifting production from China to Japan. When asked about this shift, Chairman Noriyuki Inoue said, “Daikin sees great potential in being able to turn yen depreciation into a positive advantage.” In addition to the depressed yen, rising labor costs in China and other emerging markets are encouraging these companies to shift their production back to Japan.

The jury is still out on what the long term effects of this increase in exports, and depressed yen will be. Many skeptics are saying that export growth will only remain modest and that Japan will be unable to reverse the trend of companies producing in China and other emerging markets. Regardless of the long term effects, the growth in exports in combination with the low oil prices puts Japan in a much more promising financial position than they were half a year ago.

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