This paper empirically examines the impact of recent changes in Japan's trade patterns on domestic factor markets. According to our factor content analysis, Japan's net exports changed in a direction that Japan has come to export more physical and human capital-intensive products over the past two decades. On the other hand, a major part of the macro-economics change in the capital-labor ratio and the change in the skilled-labor ratio can be attributed to a within-industry shift rather than a between-industry shift. Our empirical analysis provides evidence that the deepening of international devision of labor contributed to skill upgrading in Japan. Vertical intra-industry trade and outward FDI had a strong positive effect on the increase in the share of skilled workers.