Japan Current-Account Surplus Shrinks 63% as Machine Orders Drop

Japan’s current-account surplus was the smallest for the month of May since at least 1985 and machinery orders fell the most in more than a decade.

The excess in the widest measure of trade shrank 63 percent from a year earlier to 215.1 billion yen ($2.7 billion), the Ministry of Finance said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg News was for a surplus of 493.1 billion yen. Machinery orders, an indicator of capital spending, fell 14.8 percent in May from the previous month, the Cabinet Office said, the biggest drop since 2001.

Japan’s trade position has weakened due to growing energy imports after last year’s earthquake and nuclear meltdown and also the yen’s gain of 4.9 percent against the dollar since mid- March. Prime Minister Yoshihiko Noda gave approval for a restart of reactors at the Ohi nuclear plant, which resumed power generation last week, to avoid power shortages and rolling blackouts over the summer.

“Today’s machinery order drop is very large, and it may be a signal that Japanese companies are becoming cautious about investment” amid concern about a global economic slowdown, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. “Though exports have been slumping, we don’t expect Japan to have any major trade deficit.”

The yen traded at 79.73 against the dollar as of 2:32 p.m. in Tokyo. The Nikkei 225 Stock Average (NKY) slid 1.2 percent. Tokyo Electron Ltd. (8035) fell 5.8 percent after the company last week said orders in April-June period fell 28 percent.

Growing Uncertainty

“Uncertainties over the outlook for the global economy are growing as the economies in the U.S. and China have been doing worse than people anticipated while Europe remains weak,” said Mika Ikeda, an economist at Nomura Securities Co. in Tokyo.

Orders from chemical makers and aerospace manufacturers were among sectors that led the declines, according to today’s report. Given that a separate central bank survey released last week showed companies plan to increase outlays this year, today’s report may just be a “one-off decline,” Ikeda said.

Japan posted a 4.4 trillion yen trade deficit in the fiscal year that ended March 31 as energy imports rose and exports fell due to the yen’s gains and weak demand in Europe and Asia. Income from investment abroad, which includes interest payments and dividends on equities and debt securities, has served as a buffer against a deficit in the current account balance.

The economy grew at an annualized 4.7 percent pace in the first three months of this year, a pace which probably cooled to 2 percent in the second quarter and about 1.5 percent in the last 6 months of 2012, according to a Bloomberg survey of economists.

Economic Evaluation

The Bank of Japan raised its economic evaluation of all regions for the first time in more than two years, citing improvements in consumer spending and rebuilding demand from last year’s earthquake, it said in a report released last week.

Kansai Electric Power Co. (9503), the nation’s second-biggest generator, resumed electricity generation at its No. 3 reactor at the Ohi plant in central Japan on July 5. That ended a two- month period in which all 50 of the country’s reactors were off- line.

“The restart of a Ohi nuclear reactor itself will only have limited impact on energy imports,” unless there will be more developments on a restart of other nuclear plants, Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo, said before the report.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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

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