Bank of Japan Governor Kazuo Ueda used the 2026 Michel Camdessus Central Banking Lecture at the International Monetary Fund on Friday to explain how Japan’s external surplus has changed its nature over four decades, in a speech titled “Japan’s Current Account Surplus and Corporate Adjustment” that made no comment on monetary policy.
The surplus itself has been durable, generally between 2 and 4 percent of gross domestic product over roughly the past 40 years, Ueda said. Its composition has inverted. The trade surplus, which exceeded 4 percent of GDP in the mid 1980s, has since shrunk and turned toward deficit, while the primary income surplus, near zero at that time, has expanded to more than 6 percent of GDP. Japan now earns its surplus as what Ueda characterised as a mature creditor nation, from profits of foreign subsidiaries and from interest and dividends on overseas assets rather than from exporting more goods than it imports.
The channel was corporate saving. After the post bubble balance sheet adjustment, Japanese companies redirected high retained earnings into foreign direct investment: the share of direct investment in the asset side of the financial account rose from 21.0 percent in 1996 to 2011 to 46.5 percent in 2012 to 2025, overtaking portfolio investment as the main driver of capital outflows, with returns on that direct investment above 8 percent in many periods.
Ueda pointed to early signs of the adjustment running the other way. In a Bank of Japan corporate survey in 2024, more than 70 percent of companies said they had made domestic investment more active in 2023 to 2024 than before, most often to respond to domestic labour shortages with labour saving and automation investment. Domestic capital investment since the pandemic has surpassed its early 1990s peak, and bank lending has recently grown at 5 percent or more, the fastest pace in 30 years excluding the special factors of 2020. He described corporate risk taking as awakening, while cautioning that it remains uncertain whether the revival amounts to the domestic demand led adjustment envisaged 40 years ago, since ageing will draw down household savings and could shrink the corporate savings surplus from the other side.
For rates markets the significance is what the speech did not do. With the Bank of Japan’s policy rate at 1.25 percent after September’s 7 to 2 decision, its September minutes published this week debating faster hikes, and the yen at 158.43 per dollar at Friday’s close in site market tables, Ueda left the December meeting entirely unaddressed and kept the focus on the structural story.