Japan’s Current-Account Surplus Shrinks as Trade Slumps

Japan April Current Account Surplus
Containers are stacked at a shipping terminal in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Japan posted a smaller-than-expected current-account surplus in April, highlighting weak global demand that is depressing exports.

The excess in the widest measure of the nation’s trade was 333.8 billion yen ($4.2 billion), the Ministry of Finance said in Tokyo today. The median estimate of 22 economists surveyed by Bloomberg News was for a surplus of 440.8 billion yen. Gross domestic product in the first quarter grew an annualized 4.7 percent, a separate report showed.

A 5.6 percent appreciation in the yen against the dollar since mid-March, higher energy costs and falling exports have eroded the nation’s trade position. The economy might have peaked in the first quarter, with analysts surveyed by Bloomberg News predicting the expansion will moderate this year as rebuilding projects to recover from last year’s earthquake are expected to taper off.

“We can’t be optimistic going forward as things are getting worse overseas day by day,” said Azusa Kato, an economist at BNP Paribas SA in Tokyo. “Japan will probably maintain growth in the coming quarters because of reconstruction demand but it’s not going to be as fast as last quarter.”

European Crisis

Spain was downgraded by Fitch Ratings yesterday to within two steps of junk, adding to the turmoil in Europe that has sent at least eight of the 17 euro-area economies into recession and damped European demand for foreign goods. The crisis is hurting Japanese exporters such as Sony Corp., whose stock fell below 1,000 yen in Tokyo trading this week for the first time since 1980.

“Economic activity in Japan’s major trading partners is the biggest risk to Japan’s external balance,” Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo, said before the report.

A strong yen raises prices for exporters and reduces the value of their repatriated income. Every one-yen appreciation versus the U.S. currency leads to a 2.4 percent drop in operating profit at Nissan Motor Co. and 3.3 percent at Toyota Motor Corp., according to a Goldman Sachs Group Inc. report in April.

Toyota President Akio Toyoda, speaking June 4 as chairman of the Japan Automobile Manufacturers Association, said the yen is a “major concern.” Carlos Ghosn, Nissan’s chief executive officer, said in April the currency is the unpredictable “1,000-pound gorilla” that makes all Japanese automakers suffer.

Trade Slump

The trade portion of the nation’s current account was in deficit for the first time since January, today’s report showed. The revised GDP figure beat analysts’ forecasts after capital spending and private consumption were better than the government initally estimated last month.

All of the nation’s 50 reactors have been idled for maintenance or safety checks following the March 2011 earthquake and tsunami that caused the worst atomic accident since Chernobyl at Tokyo Electric Power Co.’s Fukushima Dai-Ichi power station. To replace nuclear power, Japan’s 10 regional power utilities imported record amounts of liquefied natural gas in the fiscal year ended March, and doubled their use of petroleum.

Kansai Electric Power Co. Inc. may get approval as early as this week to start two idled reactors at its Ohi plant, the Nikkei newspaper reported last week. Prime Minister Yoshihiko Noda said at a news conference June 4 that reactors need to be restarted for economic development.

Income Surplus

While the nation’s income surplus, the portion of the current account that includes earnings from overseas investment, is preventing any immediate swing to Japan becoming a deficit nation, Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. in Tokyo, forecasts that change may come in 2015. The BOJ’s Shirakawa disagrees with “such views,” citing the size of the income surplus.

Japan’s net international investment position of 253 trillion yen was more than 50 percent of nominal GDP as of 2011, suggesting that “the Japanese current account surplus will continue for the time being,” Shirakawa said at a conference in Tokyo last week.

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