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Japan’s Trade Deficit Widens to a Record as Exports Slump

Japan’s Trade Deficit Widens to a Record as Exports Slump
A pedestrian walks past the Bank of Japan headquarters in Tokyo, Japan. Photographer: Kiyoshi Ota/Bloomberg

Japan posted a record trade deficit in January as the yen’s strength and weaker global demand eroded manufacturers’ profits and slowed the nation’s recovery from last year’s earthquake and tsunami.

The gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier as energy imports surged, a Ministry of Finance reported in Tokyo today. The median estimate of 28 economists surveyed by Bloomberg News was for a shortfall of 1.46 trillion yen.

The drag from trade risks countering the boost from reconstruction work that JPMorgan Securities forecasts will drive a return to growth this quarter after the economy shrank in the final three months of last year. The government is seeing progress in its campaign to rein in the yen, with the currency trading at the weakest in seven months against the dollar after the Bank of Japan last week announced extra monetary stimulus.

“The recovery pace may be slow,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “That’s because a recovery in exports may be dull and reconstruction demand may not come out as strongly as some people expect.”

The yen traded at 79.48 per dollar as of 12:12 p.m. in Tokyo, from 79.83 before the report. Japan sold a record 8.07 trillion yen on Oct. 31 after the currency reached a postwar high of 75.35 against the U.S. dollar. The Nikkei 225 Stock Average climbed 1.4 percent.

Contraction in Thailand

Asian stocks also advanced after China cut banks’ reserve requirements to fuel lending and buoy economic growth, boosting demand for riskier assets. The MSCI Asia Pacific Index rose 1.1 percent to 128.31 as of 11:57 a.m. in Tokyo.

Elsewhere in Asia, a report today showed Thailand’s economy shrank 9 percent in the fourth quarter compared with the year earlier on the worst floods in almost 70 years. In New Zealand, producer input prices gained 0.5 percent in the same period from the three months through September, the smallest increase since the fourth quarter of 2009, Statistics New Zealand said in Wellington.

Japan’s trade figures may have been skewed by a Lunar New Year holiday falling in January instead of February this year, reducing business days in Asian markets.

Sony Corp., which gets 21 percent of its revenue from Europe, widened its loss forecast to 220 billion yen on Feb. 2. Besides the yen, it also cited cuts to production because of the flooding in Thailand, and the cost of exiting a venture with Samsung Electronics Co. for what will be its fourth annual loss in a row.

China, European Union

Shipments to China, Japan’s largest market, fell 20 percent from a year earlier, the biggest decline since Aug. 2009. Exports to European Union slid 7.7 percent and shipments to the U.S. advanced 0.6 percent.

Japan’s GDP contracted an annualized 2.3 percent last quarter. Net exports, or overseas shipments less imports, subtracted 2.6 percentage points from this figure, the government said in a report last week.

In other parts of the world, France may say an index of business confidence was little changed in February compared with January, when it fell to the lowest in almost two years, according to a Bloomberg survey of economists. A separate index on the outlook for production probably stayed negative for a seventh month, economists predict.

Italy’s industrial orders rose 0.4 percent in December from November, economists surveyed by Bloomberg said ahead of a report from the Italian statistics institute.

Markets are closed in the U.S. for the Presidents’ Day holiday.

Current Account

In Japan, the country’s trade deficit of 2.49 trillion yen in 2011 was the second largest since World War II. That also contributed to the nation’s current-account surplus sliding to a 15-year low in 2011.

March’s earthquake and tsunami led to the idling of nuclear plants and a surge in energy imports that contributed to the arrears. Japan’s liquefied natural gas imports rose 12.2 percent to a record in 2011 as power utilities increased thermal power generation by 12.6 percent from the previous year between April and September. Energy needs accounted for most of the gain in imports in January.

“The deficit is still expanding against a background of increasing energy imports.” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. “Unless we see a significant increase in the operating rate of nuclear power plants, eventually the rising cost of power will be translated to the corporations. This is likely to accelerate the pace of shifting production abroad.”

Temporary Factors

BOJ Governor Masaaki Shirakawa said last month the trade deficit “won’t become a firmly established trend” because it is driven by “temporary factors.”

Shirakawa’s board on Feb. 14 unexpectedly expanded an asset-purchase program to 65 trillion yen from 55 trillion yen, and set a price stability goal of 1 percent inflation.

“Clearly Japanese manufacturers are struggling,” Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo, said before the report. “We aren’t really expecting a major pick-up in external demand because the U.S. and Europe are undergoing balance sheet adjustments.”

The euro area’s economy contracted in the fourth quarter for the first time in 2 1/2 years. Europe’s woes were again highlighted Feb. 13 when Moody’s Investors Service cut the ratings of six European countries including Italy, Spain and Portugal.

European Exports

Japan’s exports to the EU, its third-largest export region, fell 39 percent from 2007 to last year, according to Ministry of Finance figures.

The competitiveness of South Korean companies against Japanese has been enhanced as the yen rose 7.8 percent against the won in the past 12 months.

Elpida Memory Inc., Japan’s biggest maker of dynamic random access memory and supplier to Apple Inc., said last week it has been unable to secure financing from the government and is “uncertain” whether it can stay in business.

South Korea’s Samsung Electronics, which has the largest share of the global DRAM market, had 7.34 trillion won ($6.5 billion) in operating profit from selling chips last year.

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