Question

b) Suppose Japanese exports equal ¥200 trillion (¥ is the symbol for the yen, Japan’s currency), imports equal ¥120 trillion, and Japan’s purchases of rest-of-world assets equal ¥90 trillion. What is the balance on Japan’s current account? The balance on Japan’s capital account? What is the value of rest-of-world purchases of Japan’s assets?

Answer 1

(b)

Japanese exports = 200 trillion yen

Japanese imports = 120 trillion yen

Calculate the balance on Japan's current account -

Balance on Japan's current account = Japanese exports - Japanese imports

Balance on Japan's current account = 200 trillion yen - 120 trillion yen = 80 trillion yen

The balance on Japan's current account is 80 trillion yen.

The positive balance on current account indicates that the Japan's current account is in surplus.

When current account is in surplus then capital account tends to be in deficit.

So,

The balance on Japan's capital account would be -80 trillion yen.

Balance on Japan's capital account = Rest-of-world purchases of Japan's assets - Japan's purchases of rest-of-world assets

-80 trillion yen = Rest-of-world purchases of Japan's assets - 90 trillion yen

-80 trillion yen + 90 trillion yen = Rest-of-world purchases of Japan's assets

Rest-of-world purchases of Japan's assets = 10 trillion yen

The rest-of-world purchases of Japan's assets is 10 trillion yen.