Japan exports cars and electronics and imports oil and food. For years, exports exceeding imports—a trade surplus—characterized its economy. Recently, imports have exceeded exports in continuing deficits. Are Japanese products no longer selling, or does overseas production explain the change?

Separate goods crossing Japan's borders from Japanese companies' worldwide activities. The trade balance is not a national income statement. We first examine trade history, then factory locations, overseas workers, and profits.

Why a deficit despite growing exports?

Ministry of Finance trade statistics for 1979–2025 show surpluses of JPY10.87 trillion in 1985 and JPY10.80 trillion in 2007, when goods exports repeatedly exceeded imports. A JPY2.56 trillion deficit appeared in 2011, widening to JPY20.33 trillion in 2022.

However, not every year since 2011 was in deficit. Surpluses occurred in 2016, 2017, and 2020. The 2025 deficit narrowed to JPY2.93 trillion, illustrating substantial changes over a few years.

Exports themselves have not continually declined. In 2025 they reached JPY110.40 trillion, the highest in these 47 years, while imports were JPY113.33 trillion. Larger imports still produced a deficit. These are current-yen amounts incorporating inflation and exchange rates; higher export value does not prove equal growth in volume or competitiveness.

Energy prices and yen depreciation change import payments

Imports rise for reasons beyond quantity. Buying 100 items at USD1 costs JPY10,000 at JPY100/USD and JPY15,000 at JPY150/USD. This hypothetical illustrates higher yen payments at unchanged volume. Higher dollar prices add to the burden.

Japan's payments for oil, LNG, and coal fluctuate substantially. Customs commodity statistics show mineral fuel imports, including these items, rising from JPY11.25 trillion in 2020 to JPY33.70 trillion in 2022, then JPY22.14 trillion in 2025. Imported energy is essential to explaining the large 2022 deficit.

Agency for Natural Resources and Energy materials describe greater reliance on thermal generation after nuclear shutdowns following the Great East Japan Earthquake. Meanwhile, the explanation of the 2024 Energy White Paper attributes the 2022 fossil-fuel import increase to higher prices and yen depreciation. Distinguish these fluctuations from industrial changes unfolding over decades.

The increase in fuel imports cannot itself be equated with the amount causing the deficit, since exports and other imports also change. A weaker yen increases yen-converted foreign-currency export receipts too. Relative effects depend on prices, volume, invoice currency, and imported-input dependence.

Are overseas factories only for supplying Japan?

Offshoring changes trade through another mechanism. Producing in Japan and shipping abroad is a Japanese export. The same Japanese company producing and selling abroad creates no Japanese export. Sending that product to Japan creates an import. Corporate nationality differs from the direction goods cross borders.

METI's Basic Survey of Overseas Business Activities reports a 26.7% overseas production ratio for manufacturing in fiscal 2024. This divides overseas affiliates' sales by combined sales of all domestic corporations and overseas affiliates. It is not unit output or the share of Japanese factories relocated, but indicates substantial overseas production and sales.

Are Asian factories mainly supplying Japan? In that survey, 77.1% of Asian manufacturing affiliates' sales were local or within the same region, versus 16.1% to Japan. North America showed 94.5% and 2.1%, respectively. Overseas operations primarily serve local and nearby customers.

Overseas production can replace finished-goods exports from Japan but also generate exports of Japanese components and equipment. Some customers might be inaccessible without local production. Increased overseas sales therefore cannot simply be counted as lost Japanese exports.

China's rise also requires separating competition from its roles as production base and market. Trade statistics show imports from China rising from JPY5.94 trillion in 2000 to JPY26.70 trillion in 2025, while Japanese exports to China rose from JPY3.27 trillion to JPY18.78 trillion. Imports include products made by Japanese affiliates. These statistics alone cannot distinguish losses to Chinese competitors from Japanese offshoring.

Did the United States make South America its factory, and Europe Africa?

The claim that the United States used South America, Europe Eastern Europe and Africa, and Japan Asia captures regional supply-chain expansion. But dividing the world that way misstates geography and business reality.

For the United States, Mexico and Canada in North America are crucial. Mexico is not in South America. U.S. Census Bureau 2025 trade statistics rank Mexico, Canada, and China as the largest goods import sources. North American integration overlaps with Asian sourcing. Import rankings alone do not establish U.S. ownership of factories.

For Europe, European Central Bank analysis shows production links between Germany and Central and Eastern Europe. Meanwhile, European Commission 2025 data identify China as the EU's largest extra-EU goods import source, with manufactured goods accounting for 97.3% of imports from China. European supply chains are not confined to nearby regions.

Calling all Africa Europe's factory is also too broad. European Commission statistics show primary products such as agriculture, fuels, and minerals accounting for 82.0% of EU imports from sub-Saharan Africa in 2025. This excludes North Africa, but clearly shows that finished-goods sourcing alone is an inadequate description.

Each region is both a production base and a customer market. Companies consider proximity to customers, components, logistics, regulation, and continuity risks alongside labor costs. Japan–Asia relations are not merely one-way production in cheaper locations for shipment back to Japan.

A trade deficit can coexist with overseas income

Profits from overseas factories' local sales are not Japanese exports, but profits attributable to Japanese parent investors appear elsewhere: the primary income balance, covering investment dividends, interest, and related receipts and payments. It includes portfolio investment as well as direct investment.

Ministry of Finance balance-of-payments statistics show a JPY41.82 trillion primary income surplus in 2025 and a JPY32.24 trillion current-account surplus combining goods, services, income, and other items. Japan's international economic relationships extend beyond domestic manufacturing and exports.

The balance-of-payments goods deficit here is JPY0.57 trillion, different from the JPY2.93 trillion customs figure above. Customs imports include freight and insurance, while balance-of-payments statistics separate them and adjust for ownership transfers and other matters. Do not mix figures using different definitions.

An income surplus also does not mean all that cash was remitted to Japan that year. The Bank of Japan's recording-method explanation states that profits retained and reinvested by overseas affiliates are included. Overseas earning power matters, but how it supports Japanese wages and investment is a further question.

Have overseas assignees declined?

METI's survey includes “employees dispatched from Japan” at overseas affiliates, a measure close to expatriate assignments. The total among responding affiliates fell from 59,632 in fiscal 2019 to 48,364 in fiscal 2024.

The five-year comparison shows an 18.9% decline, but responding affiliates also fell from 13,185 to 11,758. It does not track identical firms or include all expatriates in finance, insurance, real estate, branches, and accompanying families. Headcount alone cannot isolate withdrawals, local replacement, and response effects.

The Ministry of Foreign Affairs' survey of Japanese residents overseas is separate. On October 1, 2025, the total was 1,298,170: 709,684 long-term residents and 588,486 permanent residents. Compared with 2019, long-term residents declined and permanent residents increased. Students and families are included, so this is not an expatriate-worker count. Historical occupation statistics also require separating individuals from accompanying family when using the private-business category.

Operating overseas is not synonymous with dispatching many Japanese staff. Local managers may lead, or customers may be served directly from Japan. Assess international ambition using customers, sales, profits, and new investment as well as assignee counts.

Entrepreneurs should pursue overseas customers

As shown, 77.1% of Asian Japanese manufacturing affiliates' sales are local or regional. Overseas locations are established customer markets as well as production bases for Japan. Based on this, I believe entrepreneurs should pursue overseas markets. Existing firms' achievements do not guarantee new entrants' success; this is a business recommendation grounded in the evidence.

The first step need not be relocation or local incorporation. Export from Japan, deliver services online, partner with local distributors, or test demand through small projects, then decide whether a local base is needed.

Assess more than overseas revenue: profit after shipping and sales costs, payment collection, and repeat demand. International expansion should serve a sustainably profitable business valued by overseas customers, not become an end in itself. Trade and production history reinforce the need for that challenge.

I also believe policy support should be judged by new overseas customers and sustainable profits, rather than merely numbers of bases or assignees. This is a recommendation from this analysis, not an evaluation of a particular program.