Business / Economy

Diplomatic row with South Korea starts to hurt Japan's current account surplus

Reuters

Japan’s surplus in spending by overseas travelers declined in July from a year earlier as the number of visitors from South Korea tumbled, a sign the souring bilateral relations are taking a toll on the world’s third-largest economy.

The travel account surplus — or the amount spent in Japan by foreign visitors minus that by Japanese traveling overseas — shrank 0.9 percent in July from a year earlier to ¥229.3 billion, according to current account data released Monday by the Finance Ministry.

Japan’s decision in July to tighten controls on exports of materials to South Korea, which are used to make semiconductors, has prompted a backlash, with consumers there boycotting Japanese goods and canceling tours.

In July, the number of South Korea visitors dropped by 7.6 percent from a year earlier and was the lowest in nearly a year, according to Japanese government data.

Such a drop is “certainly a factor” in the travel services account, a ministry official said. “We are monitoring developments.”

The decline in the travel account surplus helped cause a 32 percent rise in Japan’s service account deficit, the data showed.

As a result, Japan’s overall current account surplus fell 1.4 percent in the year to July to ¥1.9999 trillion, largely in line with economists’ median forecast for a surplus of ¥2.0832 trillion.

The drop in South Korean tourists is a blow to Prime Minister Shinzo Abe’s plan to make inbound tourism a pillar of economic growth, and comes at a time the export-reliant recovery is hit by slowing global demand and the U.S.-China trade war.

Since Abe took office in late 2012, foreign visitors to Japan have more than tripled. The figure hit 30 million people in 2018, helped by a weaker yen and eased visa requirements.

Abe’s government set a target to increase the number of foreign visitors to 40 million by 2020 and 60 million by 2030. South Koreans account for the second-largest chunk of visitors to Japan at around 7.1 million in 2017, following Chinese at 7.4 million, according to government data.

In the balance of payment data since 1996, travel accounts are included in service accounts, which cover transactions for tourism and logistics with other countries.

The travel account surplus rose 3 percent to a record ¥1.3 trillion in January-June from the same period a year earlier, helping the service account balance swing to a surplus for the first time.

Japan’s current account surplus mainly consists of income gains from foreign direct investments and services including money spent by overseas travelers, while the trade balance tends to log deficits due to trade frictions and weak global demand.

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