Ueda Kazuo: Globalization at an inflection point

Panel remarks by Mr Ueda Kazuo, Governor of the Bank of Japan, at "Structural Shifts in the Global Economy", an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 26 August 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I would like to thank the organizers for inviting me to this symposium. It is my great pleasure to participate on this panel. The topic is a very broad and difficult one: addressing structural changes in the global economy caused by the possible trend of de-globalization and discussing their macroeconomic implications. Being no expert in trade theory, I would like to confine myself to sharing with you the picture we are seeing from Japan on these key questions.

To provide a preview of my main points, trade and foreign direct investment (FDI) patterns in Asia are changing partially in response to rising geopolitical tensions. As far as Japan-related trade and FDI flows are concerned, there has been some diversification of production from China into the rest of Asia, to some extent into North America, and also back to Japan. Some of this has been going on for a while, and thus can be more appropriately viewed as continued attempts at globalization, while some more recent diversification seems to reflect a response to geopolitical risks. The net effect of the latter flows on Japan and the world economy remains very much uncertain, but skewed to the downside. The uncertainty poses a difficult challenge for monetary policy making. 

I. Japanese Experience in the 1990s

Let me begin with the Japanese experience some three or four decades ago with respect to trade policy and its effect on the pattern of trade involving Japan, the U.S., and Asia, although the nature of trade conflict back then was very different and less threatening than what is happening now. As a result of sharp increases in Japanese exports to the U.S. in the 1970s and 1980s, the U.S.-Japan trade relationship deteriorated significantly-culminating in the adoption of trade restrictive measures such as tariffs, voluntary export restraints, etc. The trade tensions resulted in a permanent change in the structure of foreign trade involving the U.S. and Asia. By sometime in the 1990s, as shown in Chart 1, a significant portion of Japanese exports to the U.S. had taken a detour by way of the rest of Asia. I hasten to add that a more important cause of the change in the trade structure was the rise in Japanese wages relative to the rest of Asia. But I suspect that it is possible to carry out a statistical analysis that finds the U.S.-Japan trade relationship had some role. Needless to say, I also would add that a changing pattern of regional business investment-increases in inward FDI into the rest of Asia and stagnant domestic investment in Japan-was a major driver of such a relocation of production.