Shrinking current account surplus

Japan’s current account surplus for fiscal 2013 that ended in March fell by more than ¥3 trillion from the previous year to ¥789.9 billion — the lowest since comparable data became available in 1985. It marks a steep fall from the peak of ¥24.3 trillion just six years ago.

The figures point to a clear transformation in the way the nation earns money from overseas. The old export-driven model of economic growth is over, and the nation needs a new model that will keep and create jobs at home.

Behind the steep fall in the current account surplus — the broadest measure of the nation’s international trade — is the sharp increase in the trade deficit, which hit a record ¥10.86 trillion. The nation barely managed to avoid a current account deficit for the year as surplus in the primary income account, which shows Japan’s earnings from its foreign investments, rose 14 percent to a record ¥16.6 trillion.

A major factor behind the huge trade deficit is the increase in fuel imports to run more thermal power plants as nuclear power plants remain idled, the cost of which was also exacerbated by a weak yen. Also, the nation’s exports did not increase as expected — even though the yen fell 20 percent against the dollar — because large manufacturers had already shifted to overseas production to meet demand abroad.

Many automakers and electronics manufacturers — which used to drive Japan’s export-led growth — reported sharply improved profits for the business year to March, partly as the yen’s steep decline boosted the value of their foreign currency-denominated earnings.

Still, companies that had moved their production overseas after experiencing years of a strong yen to avoid being at the mercy of currency fluctuations say they have no plans to relocate their operations back home just because the yen is weaker now. Some automakers plan to increase overseas production to meet growing demand in markets abroad.

A trade deficit or a current account deficit alone do not necessarily indicate the weakness of an economy. Japan’s gross domestic product for fiscal 2013 grew 2.3 percent from the previous year. The sharp rise in trade deficit is partly attributed to robust demand at home as consumers bought more and companies increased investments ahead of the consumption tax hike in April. The deficit is forecast to fall as such demand subsides in the months after the tax hike.

Some say the rise in the nation’s primary income surplus indicates a shift from the old export-led growth to a new model where returns on overseas investments by Japanese firms fuel the economy.

However, it is questionable if that alone can create enough jobs for workers at home. Manufacturers are urged to identify core operations they keep at home, such as research and development of new technologies and products that will maintain and expand their global competitiveness, and make necessary investments for that.

A sustained deficit in the current account raises concerns, given the nation’s severe fiscal health. The latter half of fiscal 2013 saw a current account deficit of over ¥2 trillion — the first time the nation posted such a deficit over a half-year period.

Worries about the huge government debt, which topped ¥1,000 trillion and is the worst among industrialized economies in per-GDP terms, have often been dismissed on the grounds that Japanese government bonds are mostly purchased at home. But a sustained current account deficit makes that increasingly difficult, and the nation will have to start relying on foreign capital to finance its debt. Fiscal rehabilitation efforts are all the more urgent.