Deficit in current account biggest ever

Kyodo

Japan’s current account balance fell into the red in January for the first time in three years on the combination of growing imports and slowing exports, government data showed Thursday, with officials saying the situation was largely due to temporary effects.

The deficit in the balance, one of the widest gauges of international trade for a country and an influence on the currency market, stood at ¥437.3 billion, the biggest among comparable data available since 1985, the Finance Ministry said in a preliminary report. It was Japan’s fifth current account deficit on record.

The country last logged a similar deficit in January 2009 when exports fell significantly amid the global economic downturn following the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.

The balance of goods trade, the biggest component of the monthly data, staged a deficit of ¥1.3816 trillion, compared with ¥399.4 billion in deficit for the same month a year earlier.

The value of exports slowed 8.5 percent year on year to ¥4.3536 trillion for the fourth straight monthly decline, largely affected by the stronger yen, which makes Japanese products more expensive abroad, and the gloomier outlook for the global economy in the wake of the sovereign debt crisis in Europe.

Imports expanded 11.2 percent to ¥5.7352 trillion, the 25th straight month of growth, as Japanese utilities have imported more fuel oil and liquefied natural gas at a time when commodity prices continue to rise, in order to reboot thermal power generation as an alternative to stalled nuclear power due to the crisis at the tsunami-hit Fukushima No. 1 plant.

All past current account deficits were logged in January, when the nation’s exports normally slow due to the New Year’s holiday. Thus, ministry officials underscore the “seasonal factor” weigh on the current account balance.

The latest result was also affected by the fact that China, Japan’s biggest trading partner, reduced imports in the reporting month due to its Lunar New Year holiday, which came a month earlier than in 2011.

Exports to China slid 20.2 percent, compared with a 13.7 percent slide in shipments to Asia as a whole. Exports to the EU were down 7.6 percent, while those to the U.S. surged 0.6 percent.

Analysts warn of more downward pressure on the balance, even if excluding temporary effects. “Rising commodity prices, which increase the value of imports, will remain a source of major concerns,” Lee Chi Woong, an economist at Goldman Sachs Japan Co., said in his report. But Lee also said the trade deficit could shrink in February amid the diminished provisional effects, and that “as the income account continues to mark a surplus mainly due to interest earnings, it is highly likely the current account balance will return to a surplus in February.”

As the trade deficit has expanded with slowing exports, Japan’s current account balance has been supported by a surplus in the income account, which represents how much the country earns from its foreign direct and portfolio investments. In January, it logged ¥1.1326 trillion in surplus, up 3.6 percent for the 10th straight month of expansion.

The services trade balance, showing a chronic deficit in such international payments as travel and transport costs, stood at ¥93 billion in the red, expanding for the eighth consecutive months. The result came amid falls in the number of foreign tourists visiting Japan following the March 2011 earthquake and tsunami.