## Japan’s Foreign Assets and Liabilities: Implications for the External Accounts

_IMF Working Papers, February 5, 2021_

## Source details

**Canonical URL:** [Japan’s Foreign Assets and Liabilities: Implications for the External Accounts](https://www.imf.org/en/publications/wp/issues/2021/02/06/japans-foreign-assets-and-liabilities-implications-for-the-external-accounts-50058)

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## Bibliographic details
- Authors: Mariana Colacelli, Deepali Gautam, Cyril Rebillard
- Published: February 5, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513568270.001

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### Summary
- Authors: Mariana Colacelli, Deepali Gautam, Cyril Rebillard
- Date: February 5, 2021
- Core summary:
  - The composition of Japan’s current account balance has changed over time, with an increasing income balance primarily reflecting a growing net foreign asset position and higher corporate saving.
  - A comparison of Japan’s income balance with peer countries highlights: (i) relatively high yields on FDI assets, and (ii) very low FDI liabilities in Japan.
  - Panel estimation is used to derive separate exchange rate elasticities for income credit and debit, with novel accounting that disentangles the mechanical from the economic response to exchange rate fluctuations.
  - Despite the changing composition of Japan’s current account balance, its response to exchange rate movements still operates mostly through the traditional trade channel, with a small but reinforcing contribution from the income balance.

### Key findings and empirical results
- Composition and drivers:
  - Increasing income balance driven primarily by:
    - growing net foreign asset (NFA) position
    - higher corporate saving
- Cross-country comparison:
  - Japan exhibits relatively high yields on FDI assets.
  - Japan exhibits very low FDI liabilities.
- Exchange rate response:
  - Separate exchange rate elasticities estimated for income credit and income debit using panel estimation.
  - Novel accounting approach distinguishes:
    - the mechanical response to exchange rate fluctuations, and
    - the economic response to exchange rate fluctuations.
  - Overall external-account response to exchange rate movements remains dominated by the trade channel.
  - Income balance contributes a small but reinforcing effect to the response.

### Methods and scope
- Empirical approach:
  - Panel estimation to obtain distinct exchange rate elasticities for income credit and income debit.
  - Novel accounting decomposition separating mechanical vs economic exchange rate effects.
- Subjects and keywords covered:
  - Credit, Current account balance, Income, Real effective exchange rates, Trade balance
  - Keywords: balance response, Current Account, debit channel, Exchange Rate Elasticity, Income Account, Income Balance, income credit, Japan, NFA, property income, WP

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2021/02/06/japans-foreign-assets-and-liabilities-implications-for-the-external-accounts-50058_