Specialization in Specific Industries

In Japan, the Ministry of International Trade and Industry (MITI) coordinates national
industrial policies consistent with economic and social growth. The industries they are focusing
on are: chemicals, iron and steel, shipbuilding, and transistor radios in the 1960s; automobiles
and electronics in the 1970s; and computers, computer chips, and other high-technology
industries for the 1980s.

The amount of land in Japan suitable for agriculture is insufficient to produce enough food
for Japan's large population. As a result, Japan imports most of its food from other countries.
Japan lacks many raw materials needed for industry and energy, such as oil, coal, iron ore,
copper, aluminum and wood. Japan must import most of these goods.
Japan purchases oil from the Middle East. Since the price of oil rose in 1973, Japan has
spent more money on oil than any other imported product. Middle Eastern countries cannot use
all of the products Japan needs to sell or trade for the oil it uses, so Japan must sell its products
elsewhere.
When a country sells more to one nation than it buys from it, the trade between the two
countries (bilateral trade) is not balanced. In a world where many countries trade with each other,
it is natural for countries to run bilateral trade deficits with some countries and bilateral trade
surpluses with others. This is because trade encourages nations to specialize in the production
of the things they produce well and to import those things they cannot produce as well as some
other country. The more specialized a nation becomes the more likely it is to run a trade deficit
with the nations that supply the inputs (oil and raw materials), and to run trade surpluses with
countries that buy the final products. Japan buys coal and other raw materials from Australia and
uses these resources to make high technology items. It cannot sell enough of its finished products
to Australians to pay for the raw materials it buys from them. So, it runs a trade deficit with
Australia, which it pays for by running trade surpluses with other nations, for example, France.
Japan is using its trade surpluses with the United States to pay for its trade deficits with the OPEC
(Organization of Petroleum Exporting Nations) nations.
Textile
Japan obtained the necessary technologies and skills to be able to establish and expand the
textile industry, particularly cotton-spinning. The textile industry was one of the first industries in
Japan to adopt Western technology. The domestic production exceeded imports in the early
1980s. By the late 1890s, exports already dominated imports. Textiles were the most important
Japanese exports before World War II. After the war, the textile industry lost its supremacy and
imports exceeded exports. This industry was fast in adopting Western technology and it also
quickly became the biggest industry in Japan. This proves that building technological capabilities
was the key element to being able to grow and develop. However, the textile industry was also
quick to decline and lose its domination.
Iron and Steel
One of the biggest companies in Japan in the 1900s is the Yawata Steel Works. This
company symbolized the result of adopting modern Western technology. The government and
the military played a vital role in the development of the industry. Introduction of one technology
may cause imbalance for further innovations.
Electrical and Communications Equipment
The electrical and communications equipment industry is one of the biggest industries in
Japan today, an example of how Japan was able to efficiently use technology imported from
Western countries and how these were effectively combined with local technology. There are two
factors contributing to the effectiveness of the combination of imported and local technology:
sophisticated craft skills and technological knowledge in machine engineering and timing. Japan
lagged behind America and Europe in terms of technology in the late 19th century but they were
able to cope through reverse-engineering.
Automobiles
In the past, the automobile industry was dominated by European and American
automobile manufacturers but Japan was able to keep up with the technology of foreign firms
because of reverse-engineering and research and development. Another reason for the
industries' success is the government's role. The government gave the automobile industry
several benefits such as financial incentives, standard setting, procurement by the military and
the transportation authority, and protection from foreign industry. Japan is the dominant player in
the world's automobile industry today.
Shipbuilding and Aircraft
In Japan, majority of aircraft manufacturers like Mitsubishi Jukogyo, Kawasaki Jukogyo,
and IshikawajimaHarima Jukogyo. were originally shipbuilders. The Japanese aircraft industry
was able to catch up with the West and the even became one of the major producers before World
War II. However, the aircraft industry was not able to fully recover after the defeat of Japan in the
war and failed to regain its supremacy in the worldwide industry. The shipbuilding industry was
also unable to dominate the industry.
Pharmaceuticals
The history of the pharmaceutical industry is separated into five stages. Stage I is when
the firms sold different herb medicines of Japanese, Chinese, and Korean origin. Stage II is when
firms imported Western medicines. Stage III started when firms began producing medicines.
Stage IV started when firms imported technology through license agreements with Western firms.
The last stage is when firms started to deepen their own research and development efforts.
The Japan yens effective exchange rate by industry

The effect of the yens appreciation in 2011 on Japanese exporting companies is often
measured in the fiercely competitive areas of transportation equipment, electrical products, and
machinery against their Korean rivals, as the Korean won depreciated to 15.32 won per yen at
the end of September 2011 (the won had depreciated by 12% from the same month in the
previous year). According to the data for 2008 onwards, the yen appreciated most significantly in
the metal and metal products areas, with differences of as much as five points or more at certain
times compared with the precision instruments area. Such data could be reflected in the
formulation of policies and can determine which industries should be prioritized in emergency
measures against a rising yen.

Industrial Policy Tools

The industrial policy tools implemented in Japan are protection from foreign competition, direct
subsidies, subsidies through the tax code, preferential access to credit, and special aid through
government procurement. These policies help the industries to thrive.

Famous Japanese Brands