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Trade deficit exposes weak yen woes

AFP-JIJI

Japan’s trade deficit swelled to a record in 2013, data showed Jan. 27, as once-bumper surpluses disappear under the weight of soaring post-Fukushima energy bills, an imbalance stoked by Prime Minister Shinzo Abe’s cheap-yen policies.

The currency has lost about a quarter of its value against the dollar since late 2012 owing to a policy blitz dubbed “Abenomics,” which meshes government spending with massive central bank monetary easing — a plan aimed at reviving the world’s third-largest economy. The yen’s decline inflated profits at exporters such as Sony and Toyota, and kicked off a stock-market rally that saw the Nikkei index surge 57 percent last year, its best run in over four decades. The weaker currency also gives exporters more flexibility to lower prices on the televisions, cars and computer chips that they sell abroad.

But after suffering through years of a record-high yen, most firms have not slashed overseas prices, and the now-weaker unit has jacked up Japan’s energy costs.

Imports of pricey fossil fuels have surged since the 2011 atomic crisis forced the shutdown of nuclear reactors that once supplied a third of the nation’s power.

“There are no signs that the weak yen is raising the competitiveness of Japanese exports,” said Capital Economics, noting the country’s share of global exports has changed little despite the yen’s plunge. “A major reason is that exporters have been reluctant to lower export prices,” it added.

And despite his sweeping national elections on a pledge to kickstart the economy, the impact of Abe’s policies has largely stopped at the boardroom door. Critics say he must follow through on structural reforms to the economy, including shaking up labor markets and signing free trade deals.

Data Jan. 27 showed Japan’s trade deficit swelled to a record $112 billion last year, marking the biggest deficit since comparable data started in 1979. The December figure alone doubled from a year earlier. Exports rose 9.5 percent to ¥69.79 trillion, their first increase in three years, but that was offset by a 15 percent jump in imports to a record ¥81.26 trillion.

Taro Saito, senior economist at NLI Research Institute, said Japan’s yawning trade deficit would “continue for quite some time.”

When the yen was trading around 80 to the dollar in recent years, many firms shifted production away from Japan to cheaper bases overseas, diluting the benefits of a now-cheap currency, Saito said. “It is getting difficult for Japan to boost exports because companies have shifted a lot of their production to foreign countries,” Saito added. “So, the equation of a cheaper yen equalling a rise in exports in not very true anymore.”