ABSTRACT
As Japan scurries from pillar to post, searching for a painless quick fix, it keeps returning to the dream that it can export its way out of trouble. Trade’s impact on demand growth is a function of the trade balance, with a surplus adding to demand and a deficit subtracting from it. There are some economists who say Japan could run a trade surplus as big as it wanted to—even 10 percent of GDP—if only it drove the yen down enough. One must also consider the hollowing out of Japan’s most powerful export industries. To the extent that people want to buy Japanese cars or TVs or machine tools, they increasingly buy them from factories outside of Japan. In recent years, the swing factor has been foreign sentiment about Japan, which changes in sync with Japan’s economic and financial fortunes.
