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’12 trade deficit at record ¥6.9 trillion

Kyodo

Japan logged a record trade deficit of ¥6.93 trillion in 2012, up 2.7-fold from the previous year, as exports shrank amid the territorial dispute with China and Europe’s sovereign debt crisis while fossil fuel imports soared, the government said Thursday.

The previous record deficit was ¥2.61 trillion, set in 1980 during the second oil crisis, the Finance Ministry said in a preliminary report.

The balance of trade in goods remained in the red for the second consecutive year.

Gas and oil import costs could keep growing if the nation’s nuclear reactors remain suspended, but Prime Minister Shinzo Abe’s policy of driving down the yen could help exports bounce back and improve the trade balance.

Some analysts, however, warn that if the yen falls steeply, rising costs of energy imports could weigh on corporate profits and make companies more reluctant to boost investment, dealing a further blow to the economy.

The value of exports, a key engine of Japan’s economic growth, fell 2.7 percent last year to ¥63.74 trillion, down for the second year in a row, due to a fall in shipments of power engines and vehicles to China and of semiconductors and other electronic parts to Europe.

The trade balance with the EU fell into the red for the first time ever with a deficit of ¥139.7 billion. Japan registered its largest-ever deficit of ¥3.52 trillion with China amid the Senkaku territorial row in the East China Sea.

But exports are expected to rebound.

“Because the global economy is recovering and the yen is weakening, the environment surrounding (Japanese exports) has been improving,” said Taro Saito, senior economist at NLI Research Institute. “It is likely that exports will hit bottom by the end of fiscal 2012″ through March 31.

The Bank of Japan, which pledged Tuesday to carry out “open-ended” monetary easing to achieve a 2 percent inflation target and curb the strong yen, also took a cautiously optimistic view on the outlook for exports.

“Exports are expected to decrease at a reduced pace for the time being and start picking up thereafter as overseas economies gradually emerge from the deceleration phase,” the BOJ said Wednesday.

The value of imports was up 3.8 percent to ¥70.67 trillion in 2012 for the third straight yearly increase as liquefied natural gas imports jumped 25.4 percent and crude oil imports 7.3 percent, the ministry said.

Domestic demand for fossil fuels has been intense since all reactors were shut down because of the Fukushima nuclear crisis.

The ministry said the yen strengthened against the dollar by 0.5 percent in 2012.

The appreciation of the yen pushed up prices of imports and dragged down exporters by making their products more expensive in other countries and less competitive against cheaper ones made by Asian rivals.

The yen has recently shown signs of sliding against other major currencies, but Hisashi Yamada, chief economist at Japan Research Institute, said, “an excessive depreciation of the yen could drive energy and other material costs higher, negatively affecting corporate performance.”

The dollar surged to its highest level since June 2010 at ¥90.25 on Monday, up from around ¥80 in mid-November, buoyed by Abe’s pledge to urge the BOJ to take “bold monetary easing” to beat chronic deflation.

In December alone, the trade balance posted a deficit of ¥641.5 billion, the sixth straight monthly deficit, as exports fell 5.8 percent from a year earlier to ¥5.3 trillion and imports expanded 1.9 percent to ¥5.9 trillion.