Current account surplus hits lowest level in 15 years

Kyodo

The current account surplus shrank to its smallest level in 15 years in 2011, largely affected by slowing exports on the stronger yen and global economic downturn amid the sovereign debt crisis in Europe, the government said Wednesday.

The balance, the widest gauge of international payments by a country covering goods and services trade as well as capital investment, dropped 43.9 percent from the previous year to ¥9.63 trillion, staging the sharpest fall since records began in 1985, including the decline at the height of the global financial turmoil in 2008.

Analysts pointed to deterioration in trade conditions for Japan, notably higher crude oil and other energy costs, with some predicting a current account deficit if the present situation remains.

The surplus, which has attracted relatively strong demand for the yen from currency investors as a safe haven at a time of global economic uncertainty, contracted for the first time in two years. The amount was the smallest since 1996, when the surplus came to ¥7.15 trillion.

The downward pressure was caused by sluggish exports, down 1.9 percent to ¥62.72 trillion, as a result of the March 11 earthquake and tsunami, which significantly weighed on production, as well as the appreciation of the yen against other major currencies, which makes Japanese products relatively expensive abroad.

The Finance Ministry said the impact from the natural disasters diminished during summer, but the fiscal problems in the eurozone and the subsequent negative outlook for the world economy have eroded Japanese exports not only to Europe but also to Asia. Vehicles and electronic parts such as semiconductors were major decliners in exports.

The balance of trade in goods logged a ¥1.61 trillion deficit, the first red ink in 48 years on a current account basis, with imports growing 15.0 percent to ¥64.33 trillion on robust consumption of crude oil and liquefied natural gas to boost thermal power generation due to the nuclear crisis.

A ministry official said the government thinks the trade balance will improve in fiscal 2012 if the global economy sees a moderate recovery amid easing tension over Europe.

But Masamichi Adachi, senior economist at JPMorgan Securities Japan Co., said more serious consideration must be given to higher energy costs.

“It is likely the current account balance will fall into red as early as in the first quarter of 2015 if the deterioration in the trade environment, or growth in imports, continues,” Adachi said, referring to his company’s estimate.

The services trade balance, a chronic source of deficit covering such elements as the payments of travel and transport costs, was ¥1.64 trillion in the red, marking the first expansion in four years as the number of foreign tourists visiting Japan has been down.

Japan’s current account surplus has been underpinned by strength in the income account balance, which represents how much the country earns from its foreign direct and portfolio investments. In 2011, the surplus in the balance rose 19.9 percent to ¥14.03 trillion, the first expansion in four years.

In December alone, the current account surplus shrank 74.7 percent from a year earlier to ¥303.5 billion, the 10th consecutive month of contraction.