Japan Current Account Moving to Surplus Adds Support for Yen

Japan swung to a current-account surplus in February after a record deficit in January, lending support to a currency that officials have sought to weaken to aid exporters and economic growth.

The excess in the widest measure of trade was 1.18 trillion yen ($14.5 billion) the Ministry of Finance said in Tokyo today. The median estimate of 25 economists surveyed by Bloomberg News was for a surplus of 1.12 trillion yen.

The yen is rebounding even after interventions by the finance ministry and monetary easing by the Bank of Japan helped to bring the currency down from October’s post World War II high against the dollar. Governor Masaaki Shirakawa’s policy makers are meeting today and tomorrow to decide whether the world’s third-biggest economy needs more support as it recovers from last year’s earthquake and tsunami.

“There is no doubt that the yen is still too strong for companies to become optimistic, which leads to less investment and weak growth,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “The BOJ will have to be mindful about the recent yen appreciation.”

The yen traded at 81.48 per dollar, up 0.2 percent as of 10:40 a.m. in Tokyo, strengthening for a fourth day. The Japanese currency hit a postwar high of 75.35 per dollar in October before expanded monetary stimulus by the central bank on Feb. 14 aided weakening.

Economic Forecast

Gross domestic product may have expanded an annualized 1.7 percent in the first quarter after a 0.7 percent contraction in the final three months of last year, according to the median estimate in a Bloomberg News survey of analysts.

“I hope the BOJ will strengthen monetary easing to leave the yen somewhere between 85 and 90,” Masayuki Kichikawa, Tokyo-based chief economist at Merrill Lynch Japan, said before today’s data was released.

Japanese stocks dropped for a fifth day as U.S. employers added fewer jobs than forecast, damping the outlook for a recovery in the world’s biggest economy and prospects for Asian exporters. The Nikkei 225 Stock Average fell 1.3 percent as of 10:41 a.m. in Tokyo. Sony Corp. (6758), Japan’s biggest consumer- electronics exporter, lost 2.8 percent as the yen gained.

Even as Japan’s trade swung back from a deficit, February’s surplus remained 31 percent less than a year earlier, on weakness in exports and import costs swelled by elevated oil prices and the idling of all but one of the nation’s 54 reactors.

Debt Burden

Declines in the surplus highlight the risk that Japan may switch this decade to needing overseas funding to service the nation’s debt burden, a change that could push up bond yields. At the same time, the 437.3 billion yen deficit in January was partly seasonal, with any surplus usually smaller in that month than in the rest of the year.

Japan’s income surplus, the portion of the current account that includes earnings from overseas investment, is a buffer against the nation slipping into continued deficits. The income surplus tends to be higher in February and March due to interest and dividend payments repatriated before the end of the financial year on March 31.

“It’s highly likely Japan will continue to have a surplus for the coming three to four years,” Merrill’s Kichikawa said before today’s report.

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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