The trade turnover between Japan and China is a major driving force in the economic dynamics of the Asia-Pacific region. As the two largest economies in Asia, their ties significantly impact each other’s financial well-being and the regional economy as a whole. Japan predominantly exports high-tech goods, such as electronics and chips, to China and other Asian nations, bolstering its own economy by fostering technological advancement, job opportunities, and GDP growth. Recent Japanese export data from March 2024 highlights a significant increase in revenue from supplying chip production equipment to China, soaring by 82.4%.

Japan's Export Portfolio

In particular, the export of Japanese microchips and semiconductors, produced by companies like Toshiba, Sony, and Renesas, is a key aspect of this trade dynamic. Japan’s reputation for quality and precision in electronics stems from strict production standards, continuous research and development, and a culture of constant improvement known as kaizen. Exports of all goods and services from Japan to China saw a robust increase of 12.6% reaching $11.3 billion in March. This positive trend has been maintained for the fourth consecutive month. Japan’s exports to other Asian countries collectively grew by 6.6%, while exports to the United States experienced an 8.5% rise. However, exports to Europe saw a more modest increase of 3%. Overall, these March figures, as reported by the Japanese Ministry of Finance, resulted in a foreign trade surplus, with Japan’s export revenue climbing by 7.3% year-on-year to $61 billion. 

For Japan, trade ties with China are not only essential due to the size of the Chinese market but also because of the numerous export opportunities it presents. Geographical proximity and longstanding cooperation further solidify China as Japan’s preferred trading partner. Beyond electronics, Japan exports automobiles, machinery, chemicals, medical equipment, and various industrial components to China and neighboring countries, supported by government policies promoting innovation and a robust education system.

Japan’s strategic choices in export destinations and import sources, particularly focusing on Asian countries and minimizing reliance on Europe and the United States, are influenced by multiple factors. These include historical economic and cultural ties with neighboring Asian nations, the pursuit of opportunities to integrate into regional value chains, and leveraging geographical advantages. Additionally, close collaboration with China holds the potential to enhance the international standing of the Japanese yen. Increased bilateral trade can spur demand for the yen, bolstering its role as a significant global reserve currency over the long term.

Throughout 2024, the USDJPY performed favorably, reflecting the positive trade dynamics between Japan and its partners. Even minor fluctuations in prices were closely monitored using tools like the free bar replay, shedding light on how external factors influence currency movements.

While actual exports from Japan to China and the United States saw modest increases of 0.9% and 1.8%, respectively, analysts attribute the restrained growth in Japanese exports to these regions to high refinancing rates. They suggest that only with higher prices can more substantial export growth be achieved. Importantly, energy prices play a significant role in determining Japan’s import patterns. In March 2024, export prices from Japan rose by 8.5% year-on-year, while import prices increased by 1.4%, with a notable decline of 6.9% in the energy segment.

Japan’s trade partnership with China holds immense significance for both nations’ economic strategies. This collaboration fosters industry strengthening, technological advancement, and increased interdependence, laying a sturdy foundation for stability and growth in the Asia-Pacific region as a whole.