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Current-account gap widens to record on weak yen

Bloomberg

As imports climbed, the nation’s current-account deficit widened to a record in November, underscoring challenges for Prime Minister Shinzo Abe as he tries to drive a sustained economic rebound.

The ¥592.8 billion shortfall in the widest measure of trade, reported by the Finance Ministry on Tuesday, was larger than the median forecast of ¥368.9 billion in a Bloomberg News survey of 24 economists. The deficit is the biggest in comparable data dating back to 1985.

Weakness in the yen and extra demand for energy because of nuclear-plant shutdowns are driving up Japan’s import bill, highlighting drags on the recovery that will also include a sales tax increase in April. A longer-term risk for the nation is any shift to a sustained deficit that will undermine investor confidence in Japanese government debt.

“The record deficit reflects a change in Japan’s current economic makeup” with its lack of nuclear power and a weaker yen, said Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group PLC in Tokyo, adding that the shortfalls in the balance may provide further reasons for the yen to fall.

The latest numbers underscore the risk that Japan could switch in coming years to becoming a deficit nation that needs funding from abroad to service a debt burden that is more than twice the size of the economy. For now, a surplus in income from overseas is preventing such a shift.

“We have to take this problem seriously and solve the underlying causes,” Akira Amari, the Cabinet minister in charge of economic revitalization, told reporters after the release. “Japan would have to depend on foreign investment to finance its budget shortfall if it allows its current-account balance to remain in deficit.”

Naohiko Baba, an economist at Goldman Sachs Group Inc. in Tokyo, says that export volumes and wages will be key economic indicators in a critical year for the prime minister’s “Abenomics” economic policies. Growth in shipment volumes as a result of the yen’s weakness is lower than “would be expected by the market so far,” Baba said in a note Monday.

While Baba expects improvements in exports because of a U.S.-led global recovery, risks include Japan’s continuing shift to offshore manufacturing, Baba added in the note.

On a seasonally adjusted basis, the balance was in deficit for the third month in a row, the longest run of shortfalls on record.