In recent decades, Japanese companies have extended significantly their activity abroad. According to the Ministry of Industry data, a quarter (25.8%) of the total turnover of Japanese manufacturers is now coming overseas subsidiaries.
The increase in this share over time has been remarkable. From 5% in 1990, the share rose to 10% in the early 2000s, before peaking at over 25% today. This growth has gone hand in hand with the expansion of the global supply chain system across the world and the integration of the Japanese economy into it.
Several key factors have led Japanese companies to strengthen their operations abroad. The gradual appreciation of the yen between the early 1980s and its peak in 2012 is a first element. Firms have also sought to move closer to local markets where demand is higher and labour costs are often lower. A shrinking labor force in Japan and a lack of available labor in Japan may have also prompted firms to look outward.
Some sectors, which are best suited to this type of development, have particularly embraced this phenomenon. This is the case of the automobile sector, the computer and electronic equipment sector, which in the 1990s moved mainly towards the industrialised regions (North America, Europe), before turning more towards Asia and in particular China at the turn of the 2000s.
This production structure, which is based on complementarity between the national territory and these subsidiaries abroad, is still working very well today. The quarterly survey published at the beginning of September by the Japanese Ministry of Finance reveals that total operating profits remain near record high in the second quarter of 2023.
As a share of GDP, profits are close to 13%. If we compare this ratio with previous peaks, it is above that just before the 2008 crisis, but slightly below 2019. But in any case, for now, companies have well navigated the succession of shocks that the global economy has suffered for more than three years, even as global demand slows and domestic consumption in Japan remains constrained by declining demographics.
The question now is whether these high profits will finally lead to a genuine takeoff in wages in Japan. This phenomenon is not occurring yet, and it is, of course, a point on which the Japanese authorities and the Bank of Japan are focusing their attention, with the aim of stimulating growth and inflation in the medium to longer term.
