Compilation Methodology for Workers’ Remittances in Japan February 1, 2005 Eika Yamaguchi Balance of Payments Statistics Section Bank of Japan

2 l Residency is the essential factor in the framework of BOP l Temporary workers’ income can be recorded on Workers’ Remittances (WR) or Compensation of Employees (CE) l Discrepancy derives from each country’s practice in determining residency of natural persons l e.g. WR in Japan’s BOP ≒ CE in the Philippine BOP Definition of Residency

3 l Foreign Exchange and Foreign Trade Law takes into consideration not only the length of stay but also employment contract within host country, namely... l From the moment a foreign worker enters the territory of Japan to work for an office, he/she is deemed resident. l Japanese leaving for the purpose of working in an office located in a foreign country is considered nonresident from the departure date. Japan’s Definition of Residency

4 l Temporary workers (not including border workers) can be assumed to have center of predominant economic interests in the host country. l issues to be discussed; l (1/3) Will one-year rule for residency remain absolute in the era of globalization? If employment contract within dwelling places is used as a measure to judge workers’ residency, discrepancy between statistics would be reduced. Residency of natural persons

5 Compilation methodology for WR in Japan l Based on ITRS (International Transactions Reporting System) in principle l Due to the high exemption threshold (currently 30 million JY), 35 major commercial banks are required to submit the partial reporting on transactions from 2 million up to 30 million JY on monthly aggregated basis. l Those partial reporting is used to supplement ITRS

6 l Debit side: The methodology for the regional breakdown of WR was improved in the first half of l The data source shifted from embarkation/disembarkation data to “statistics on the foreigners registered in Japan” l Credit side: The data source is “Annual Report of Statistics on Japanese Nationals Overseas” Compilation methodology for regional WR in Japan

7 Interview to remittance companies l Remittance companies are not required to report data in Japan l According to the each agent bank of Western Union (WU) and Money Gram (MG) in Japan, estimated remittances from Japan via WU and MG are about 6 billion and 0.15 billion Yen respectively l Since corresponding to only 4 % and 0.1 % of Japan’s WR payment in 2003, such volume is negligible in Japan

8 l According to the agent bank of WU, the scale of their payments is approximately 60 times as large as that of their receipts l According to the WU’s office in Tokyo, estimated annual market of remittance from Japan is 7.5 billion $, only 3 billion $ of which are assumed to be sent legally Interview to remittance companies

9 Remitter in Japan’s WR l Since the Alien Registration Law requires authorized status for foreigners to work in Japan, low-skilled labor is not the main remitter in Japan l The common transactions in Japan’s WR are attributed to intra-company transferees l Though assigned to posts abroad, most transferees working at multinational corporations are expected to go back to their original economy in several years.

10 l Though both are to be recorded under Current Transfer, distinction between WR and donated transfer is difficult. l issues to be discussed; l (2/3) Are there user needs to distinguish WR and donated transfer? l Despite implementation of BPM5, it is almost impossible to perfectly distinguish these two flows from our experiences. Data Collection based on ITRS

11 l Distinction between WR and Migrants transfer is difficult. l issues to be discussed; l (3/3) Are there user needs to distinguish WR and Migrants transfer? l If the initial remittance is recorded as direct investment (purchasing real estate) or other investment (deposits abroad), is it feasible to recognize Migrants transfer? Data Collection based on ITRS

12 l Current definition of Workers’ remittances in BPM5 is desired to be clarified in the process of manual revision. l For the purpose of the revision, both needs of politics and feasibility of data collection are to be fully examined. l One-year rule for residency is also to be reviewed in line with the revision of BPM5. Conclusion