Reading the terms: how the trade balance differs from the primary income balance"We made money selling things" and "we made money investing" are different stories
When you see the words "current account surplus", the meaning changes a great deal depending on whether the surplus comes from selling goods or from income on investments. According to the Japanese translation of a speech released by the Bank of Japan on November 7, 2026, Japan's trade surplus exceeded 4 percent of GDP in the mid-1980s but later declined and turned into a deficit, while the primary income surplus, close to zero at that time, has grown to more than 6 percent of GDP. The balance of payments statistics themselves are published by the Ministry of Finance.
- ○Applies: A current account surplus reflects national saving in excess of domestic investment
- ×Does not apply: A current account surplus only means that exports of goods exceed imports
- ○Applies: The primary income balance represents net income earned from investment abroad
- ×Does not apply: Japan's trade balance has been in surplus continuously from the mid-1980s until now
Key points
- The trade balance is the difference between exports and imports of goods. The primary income balance is the net income earned from investment abroad, that is, income received from overseas subsidiaries and from shares and bonds held abroad, less income paid out
- Japan's trade surplus reached more than 4 percent of GDP in the mid-1980s, then gradually declined and turned into a deficit. A footnote in the speech notes that the balance of trade in goods and services has been in deficit in many periods since the early 2010s
- The primary income surplus was close to zero in the mid-1980s but has now grown to more than 6 percent of GDP, and net income from overseas investment has become the main component of the current account surplus
- The overall current account surplus has stayed broadly in the range of 2 to 4 percent of GDP for roughly the past 40 years. In the national accounts, a current account surplus reflects national saving in excess of domestic investment
- The shift from a trade surplus to an income surplus is known as the "stages of the balance of payments" hypothesis, which describes the path from a debtor nation to a mature creditor nation. The speech cites Britain in the late nineteenth and early twentieth centuries as a parallel, noting that Britain's net income from overseas investment is estimated to have reached close to 8 percent of national income in the early twentieth century
What to do in practice
- When news mentions a "current account surplus", check which component moved, the trade balance or the primary income balance
- If you have overseas subsidiaries, note that profits retained locally are still treated as corporate saving in Japan's statistics, and that reinvested amounts are recorded as new outward direct investment
The difference between the money Japan receives from abroad and the money it pays abroad is called the current account. It is easier to understand if you split it in two. One part is the difference between money from selling goods and money paid for buying goods; the other is the difference in interest and dividends received from money invested overseas. According to the text of a speech released by the Bank of Japan on November 7, Japan used to have a larger first part, and now the second part is larger.
- 1. In the pastJapan received more money from selling goods abroad
- 2. TodayThere are years when buying and selling goods alone is not enough
- 3. Even soInterest and dividends from money invested abroad are large, so overall it still receives more than it pays
Points
- The current account is the difference between what a country receives from abroad and what it pays abroad
- Look at it in two parts: buying and selling goods, and income from investment
- Japan used to earn more from buying and selling goods; now it earns more from investment income
What the words mean
- Trade balance
- The difference between what is paid for goods sold abroad and what is paid for goods bought from abroad
- Primary income balance
- The net amount of interest, dividends and similar income received from money invested abroad
- Bank of Japan: Bank of Japan, Japanese translation of the speech "Japan's Current Account Surplus and Changes in Corporate Behavior"
- Bank of Japan: Ministry of Finance, Balance of Payments Statistics
Economic news presents published statistics and outlooks. It is not investment solicitation or trading advice. Figures are as of publication and may be revised.
This article summarizes and explains materials published by government agencies and is not advice on any individual case. Rules can change, so for actual procedures and decisions always check the latest original materials and consult professionals such as tax accountants or labor and social security attorneys. English, Simplified Chinese and Traditional Chinese versions are translations prepared from the Japanese articles for convenience. If anything differs, the Japanese text and the original source take precedence.