Japan posted its largest deficit on record …

Japan’s current account posted its largest deficit on record in November, as a weaker yen pushed up import costs but failed to give a strong enough boost to exporters.
The deficit in the current account stood at ¥592.8bn ($5.75bn) before seasonal adjustment, the ministry of finance said yesterday. That is the biggest deficit on record since comparable data became available in 1985. The figure was much wider than the ¥380.0bn deficit forecast by The Wall Street Journal and the Nikkei.
The account is calculated as the broadest balance of Japan’s trade in goods and services and investments with the rest of the world. The deficit is proof of a structural change in Japan’s position – from an export powerhouse to a net importer of goods.
Economists looking at the figures said the deficit reflected a rise in domestic demand as consumers seek to stock up on goods before higher prices come on stream in April due to a scheduled increase in the sales tax to 8% from the current 5%.
“Domestic demand has strengthened ahead of the sales tax hike, pushing up imports. This is likely to continue until March,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Current accounts are likely to return to positive after March although we will likely continue to see trade deficits,” he added.
Also driving the deficits has been a sharp rise in energy imports.
For 30 years, strong exports produced nearly continuous current account surpluses until the March 2011 earthquake and tsunami caused an accident at the Fukushima Daiichi nuclear power plant. All of the nation’s 50 reactors are currently closed, in part due to safety concerns by the public, causing Japan to rely more on energy imports.
The cost of those fuel imports has increased as the yen weakened over the last year, deepening Japan’s trade deficit and pushing the current account into the red.
November’s deficit is also a reminder that a 15% weakening of the yen on Prime Minister Shinzo Abe’s watch between January and the end of November last year – supposedly a boon for exporters by making their goods cheaper overseas – hasn’t yet turned around trade deficits.
Some economists worry that lasting current account deficits could cause a fiscal crisis in Japan.
Japan’s public debt is worth over 200% of its economic output, but debt service costs – represented by the yield on government bonds – are the lowest in the world as most of the debt is held domestically. Some economists say that a structural current account deficit would force Japan to rely more on outside investors to pay its debts. Those investors could demand higher compensation to hold Japanese debt, pushing debt servicing costs up.
On a seasonally adjusted basis, the current account balance showed a third straight monthly deficit for the first time on record.
Higher energy imports played a role in Japan’s record current-account deficit in November. But the data is a sign of a more fundamental change: that Japan’s three decades as one of the world’s biggest exporters may be over.
Since the 1980s until 2010 Japan exported more than it imported, supplying the world with electronics, machinery and other goods.
That changed in 2011, after the Fukushima nuclear disaster. Japan’s nuclear power plants shut down, pushing up imports of other fuel and tipping the trade balance into deficit.
Those reactors remain closed and Japan’s huge fuel imports, compounded by the weak yen, are widening the trade deficit.  But even stripping out fuel, Japan would be running a meager trade surplus at best. A major factor is that Japanese companies have moved production offshore, to cheaper centres in China and elsewhere.
Those goods show up in the export statistics from, say, China, not Japan. Japan’s ambitious monetary easing, meant to weaken the yen and lure companies back onshore, so far has failed to entice firms back.
“Only a small number of companies brought back factories to Japan as the yen weakened,” said Junko Nishioka, an economist with RBS Securities in Tokyo.
Japanese exporters also are having a hard time competing with other nations, especially in the smartphone market. Japanese consumers are now increasingly buying imported goods such as electronics that were once the mainstay of the nation’s exports.
“There’s a loss of competitiveness of Japanese manufacturing,” said Izumi Devalier, an economist at HSBC in Hong Kong.
That’s showing up in weak export numbers. Exports in yen terms are expected to rise 9.8% in the current fiscal year, but that gain is largely due to a weaker currency making earnings look larger in yen-terms, according to the Japan Foreign Trade Council. Imports, meanwhile, will rise 14.1%, driven by higher fuel needs, the council estimates.
The value of liquefied natural gas imports will likely rise 13.9% in the current fiscal year through end March, but imported devices like smartphones will rise 25.7%, cars 14.6% and clothing 24.8%, according to JFTC forecasts.
The current account, which measures trade and net income flows, should turn back to positive territory in the second quarter this year, many economists say. But that’s largely due to sizeable earnings from overseas investments, which will help mask a continued trade deficit.
“In the 2000s, Japan earned income from the twin trade and income surpluses, but we’re in a new structure, where a surplus in the income account makes up for a trade deficit,” said Sojitz Research Institute chief economist Tatsuhiko Yoshizaki.
Turning the nuclear reactors back on – which is still the subject of heated political debate – could help narrow the trade deficit by reducing fuel imports. But even here, the effect is likely to be limited.
Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo, said that would help reduce the gap, but it would “not be enough to change the course” of Japan’s trade patterns.
For Japan, these issues have various impacts. The government wants more business to come back onshore, raising wages and consumption and ending years of deflation. If this doesn’t happen, Japan’s economy might sink back into the doldrums. Gulf Times

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