Japan Gets Reprieve as Drop in Oil Eases Trade Impact

Japan posted a bigger-than-estimated current-account surplus in June as oil prices fell to a low for the year, easing concern that the nation is at immediate risk of needing overseas funding to service its debt burden.

The excess in the widest measure of the nation’s trade was 433.3 billion yen ($5.5 billion), compared with 215.1 billion yen in May, the Ministry of Finance said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a surplus of 415.4 billion yen.

The decline in crude prices limited Japan’s fuel bills, as trade figures showed the first drop in imports since 2009, after last year’s earthquake and nuclear meltdown bolstered demand for imported oil. The nation has become more reliant on overseas investment to support its current account with the trade portion in deficit for eight of the last 12 months.

“The rebound pushes back concern that the current account will deteriorate,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “There will be no change to the picture that the income surplus will make up for the trade deficit.”

The current account’s trade portion showed a 112 billion yen surplus in June, after an 848.2 billion yen deficit in May. Japan posted a 3.44 trillion yen trade deficit in the fiscal year ended March 31. Income from investment abroad, which includes interest payments and dividends on equities and securities, has served as a buffer against a slide into a current-account deficit.

Rising Yen

The yen has risen more than 6 percent against the dollar since mid-March and is hovering close to last year’s postwar record of 75.35 against the U.S. currency, appreciating last month to the highest against the euro in 11 years. The currency’s strength is battering companies dependent on overseas sales, with Sony Corp., Japan’s biggest exporter of consumer electronics, cutting its full-year profit forecast on Aug. 2.

Crude oil touched $77.28 per barrel on the New York Mercantile Exchange on June 28, the lowest price for the year and down 29 percent from a high this year of $110.55 on March 1.

The yen was at 78.53 per dollar at 2:34 p.m. in Tokyo. Japanese stocks rose for a third day, with the Nikkei 225 Stock Average up 0.9 percent. Benchmark 10-year benchmark bond yields climbed to 0.810 percent.

Elsewhere in the Asia-Pacific region, Australian home-loan approvals rose in June by the most this year, gaining 1.3 percent, as buyers responded to the central bank’s 1.25 percentage points of interest-rate cuts since November.

Consumer prices in the Philippines rose 3.2 percent in July from a year earlier, a six-month high, reducing scope for further interest-rate reductions.

European Factories

In Europe, Spanish industrial production probably fell for a 10th month in June, while factory output and exports in Germany may have declined from May, economist surveys show.

The Mortgage Bankers Association publishes its weekly index of U.S. loan applications today.

The Bank of Japan’s policy board is meeting today and tomorrow to decide whether to relax monetary policy to pull the nation out of more than a decade of deflation and spur growth. The Nikkei newspaper reported yesterday that the central bank may refrain from easing this week and won’t change its view that the nation’s economy is picking up moderately.

Takahide Kiuchi and Takehiro Sato, formerly Tokyo-based economists at Nomura Securities Co. and Morgan Stanley MUFG Securities Co. respectively, are participating in their first board meeting this week. Both indicated last month that the central bank should weigh pursuing more stimulus or alternative monetary policy tools to help the nation overcome more than a decade of deflation.

Improve Understanding

Their participation in the board will help improve investors’ understanding of the central bank’s projections, former board member Atsushi Mizuno said in an interview yesterday.

“The two new members have a different view on the price outlook” from that of the BOJ, said Mizuno, who was on the BOJ board from 2004-2009 and is now a managing director at Credit Suisse AG in Tokyo. “Their view is that the effects of current monetary measures are too small to end deflation, and I completely agree with this.”

Japan’s economy probably expanded at an annualized pace of 2.3 percent in the second quarter after 4.7 percent growth in the January-March period, according to the median estimate of 24 economists surveyed by Bloomberg News. The Cabinet Office will release the figure on Aug. 13.

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