Business / Economy

Japan posts healthy current account surplus despite ongoing trade deficit

Kyodo

Japan posted a current account surplus of ¥287.1 billion in August for the second straight month of black ink despite a big trade deficit, as income from foreign investments surged to a record high for the month, the government said Wednesday.

Exports rose 1.0 percent from a year earlier to ¥5.64 trillion amid growing shipments of metalworking machinery, but imports climbed 2.3 percent to ¥6.48 trillion due in part to rising imports of liquefied natural gas, bringing the goods trade deficit to ¥831.8 billion, also a record high for the month, the Finance Ministry said.

The surplus in the primary income account, which reflects how much Japan earns from its foreign investments, jumped 20.6 percent to ¥1.51 trillion, up for the second straight month, buoyed by dividends from foreign direct investment with the yen weakening, the ministry said in a preliminary report.

In August, the services sector, including passenger transportation and cargo shipping, posted a deficit of ¥250.8 billion, but the travel balance of payments improved as the number of foreign passenger arrivals in Japan soared 22.4 percent from a year before, to 1.11 million, the largest for the month.

The current account surplus is expected to keep widening as the recent depreciation of the yen will push up profits from overseas investments, outweighing an expansion in fuel energy imports triggered by the suspension of nuclear power generation since the start of the Fukushima emergency in March 2011, analysts said.

“The trade deficit is unlikely to narrow soon given weak exports, but the current account surplus may increase with the yen’s slide driving up the income account surplus,” said Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute.

Shinke added that the consumption tax hike to 8 percent on April 1 from 5 percent might also help improve the current account balance, as the increase has stifled private spending and industrial production at home, a factor that will continue to prevent imports from growing sharply.

The yen dropped versus the dollar by 5.2 percent year on year in August to ¥102.96 on an average basis and against the euro by 5.3 percent to ¥137.13, the Finance Ministry said.

A falling yen usually supports exports by making Japanese products cheaper abroad and boosts the value of overseas revenues in yen terms, though it pushes up import prices. Japan depends on imports for more than 90 percent of its energy needs.

Amid speculation that the Bank of Japan will ease its monetary grip further to stimulate the sluggish economy and that the U.S.-Japan interest rate gap will broaden, the yen has been on a downward trend versus its major counterparts.

Japan’s economy, the world’s third-biggest, plummeted an annualized real 7.1 percent in the three months through June, suffering its worst setback since the first quarter of 2009 when it fell an annualized 15.0 percent following the 2008 global financial crisis.

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