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Fading Account Surplus to End Japan Deflation, Mikuni Says

Japan’s economy is poised to rebound as the country’s shrinking current-account surplus will cap capital outflows and stimulate growth, according to Akio Mikuni, who ran credit rating company Mikuni & Co. for 26 years.

The root cause of Japan’s deflation is that the net revenue earned from exports was not spent efficiently in the domestic market, Mikuni, who also served as the vice chairman of the Japan Association of Corporate Executives, or Keizai Doyukai, said in a July 23 interview.

“Japan’s trade balance is falling into a deficit and its current-account balance is deteriorating as the yen appreciates amid global turmoil,” said Mikuni. “If the current-account surplus disappears in the future as I expect it will, money will start circulating in the domestic market.”

Government data this month showed Japan’s current-account surplus was the smallest for the month of May since at least 1985. The excess in the widest measure of trade shrank 63 percent from a year earlier to 215.1 billion yen ($2.75 billion), the Ministry of Finance said on July 9. The country 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.

The yen traded at 78.27 per dollar as of 10:26 a.m. in Tokyo from yesterday, up 3.5 percent in the past three months and nearing the postwar high of 75.35 reached on Oct. 31.

Domestic Demand

The yen’s strength will boost consumer’s purchasing power and lift domestic demand, Mikuni said. “The outlook for the Japanese economy is the brightest in 20 years.”

Japan’s consumer prices excluding fresh food fell 0.2 percent in June from a year earlier, the statistics bureau said in Tokyo today. The median estimate of economists surveyed by Bloomberg News was for no change. The country’s gross domestic product will probably grow 2.5 percent this year, economists in a separate Bloomberg poll predict.

“As spending rises, tax revenue will also increase and Japan’s fiscal health will improve in no time,” Mikuni said. “If the savings and spending become fairly balanced, we will see higher interest rates, but I don’t expect a collapse in the JGB market as some people argue, because economic growth and tax revenue will also be boosted.”

The yield on Japan’s benchmark 10-year gained 1 basis point to 0.74 percent today. It was as low as 0.72 percent this week, the least since June 2003.

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