Asia Faces Headwinds as Greece Debt Deal Moves Closer

Japan Posts Record Current Account Deficit on Energy Costs
Toyota Motor Corp. vehicles, including the Prius C, center left, bound for export, sit in a lot at the port of Sendai in Sendai City, Miyagi Prefecture, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Australian employers unexpectedly cut jobs, South Korea’s central bank warned of “downside” risks to growth and Japan reported an increasing reliance on energy imports that threatens to damp its economic rebound.

Today’s indicators highlighted headwinds for the Asia-Pacific region’s expansion as policy makers evaluate whether to add to stimulus implemented in recent months. With inflation pressures remaining, South Korean, New Zealand and Indonesian officials kept benchmark interest rates unchanged.

“Global trade has slowed so Asian countries heavily reliant on exports are certainly suffering,” said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc., a unit of Canada’s second-largest bank. “Interest rates are likely to remain unchanged for now, but the door is certainly still open for further easing on the basis of slowing trade and therefore slowing growth.”

In Australia, the number of people employed fell by 15,400 in February as currency gains hurt tourism and manufacturing, a statistics bureau report showed. Japan’s current account deficit, the first since 2009, was a record 437.3 billion yen ($5.4 billion) in January after nuclear plant shutdowns drove up energy imports. While seasonal factors played a role, the data pointed to constraints on the nation’s rebound after last year’s earthquake and economic contraction.

Asian stocks rose for the first time in four days as Greece moved closer to the biggest sovereign debt restructuring in history, a move that would aid the region’s exports by helping to contain the crisis weighing on European demand. The MSCI Asia Pacific Index added 1.2 percent as of 3:35 p.m. in Tokyo. A debt-swap offer for Greek bondholders ends at 10 p.m. Athens time.

Shrinking Economy

Japan’s gross domestic product shrank an annualized 0.7 percent in the three months ended Dec. 31, the Cabinet Office said, compared with a preliminary estimate of a 2.3 percent contraction. Higher-than-estimated capital spending was the biggest factor in the revision, which compared with a median forecast in a Bloomberg News survey of a 0.6 percent decline.

South Korea’s central bank said downside risks to growth are outweighing upside risks. While consumer prices are unlikely to rise sharply, oil costs add inflation pressures, it said.

Elsewhere around the world today, data in the U.S. may show that first-time claims for jobless benefits for the week ended March 3 matched a four-year low, according to the median forecast in Bloomberg News survey of 51 economists.

The Bank of England and the European Central Bank are expected to keep rates on hold, separate surveys show. German industrial production rose 1.1 percent in January after a 2.9 percent decline the previous month, a Bloomberg News survey of analysts indicated.

Yen Slides

In Asia, the yen slipped after the current-account data underscored concern that a deepening trade gap will erode Japan’s status as the world’s largest creditor nation. With 52 of 54 nuclear reactors shut in the aftermath of the March 11 earthquake and tsunami that triggered meltdowns at the Fukushima plant, the nation is at risk of summer power shortages that disrupt production and increase costs for manufacturers.

Weakness in exports also contributed to the shortfall.

“Fuel imports -- for generating electricity -- will remain high for as long as nuclear power is excluded from Japan’s energy mix,’” David Rea, an economist at Capital Economics Ltd. in London, said before the data. At the same time, seasonal factors were “an important cause” of the temporary deficit, he said.

Wave of Destruction

The yen traded at 81.35 per dollar as of 3:35 p.m. in Tokyo, down 0.3 percent.

The quake last year, Japan’s strongest on record with a magnitude of 9, and the resulting tsunami destroyed or damaged more than 1 million houses and is estimated by the government to have caused 16.9 trillion yen of damage. More than 19,000 people were left dead or missing.

The economy may be poised to return to growth this quarter as reconstruction work kicks in and after monetary easing by the central bank weakened the yen, aiding exporters such as Toyota Motor Corp. and Sony Corp.

Japan’s most recent previous deficit in the current account was a 133 billion yen shortfall in January 2009, also the record before today’s figure. While the nation’s income surplus prevents any immediate swing to becoming a deficit nation, JPMorgan Securities Japan forecasts that change may come in 2015, while BNP Paribas SA estimates about 2020.

“When this happens the government will need to look to overseas creditors to finance its fiscal borrowing needs,” Rea said. The higher returns that international investors would require, combined with the existing debt burden, could lead to public finances reaching “crisis point,” he said.

‘Becoming Greece’

Japan risks going down the same road as Greece as the cost of funding the world’s largest public debt rises in years ahead, Takatoshi Ito, a former senior Ministry of Finance official, said in a March 5 interview in Tokyo.

When local investors reach their limit for funding the nation’s bonds, the Bank of Japan “will either have to monetize the debt or we will need foreigners to purchase bonds and yields will jump,” said Ito, who was deputy vice finance minister from 1999 to 2001. “That will be the start of Japan becoming Greece.”

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