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Japan’s Current-Account Surplus Masks Export Weakness

Shipping terminal in Osaka
Imports fell for the first time in 19 months, as consumers cut spending after a sales-tax increase in April, while exports remained sluggish, highlighting how manufacturers can’t rely on the yen’s slide against the dollar for support. Photographer: Tomohiro Ohsumi/Bloomberg

July 8 (Bloomberg) -- Japan posted a fourth straight current-account surplus, as income from overseas investments masks the failure of the yen’s slide to boost exports.

The excess in the widest measure of trade was 522.8 billion yen ($5.1 billion) in May, the finance ministry reported in Tokyo today, beating the median forecast of 417.5 billion yen in a Bloomberg survey. Exports rose 2 percent from a year earlier.

Export volumes remain under the level when Prime Minister Shinzo Abe came to power in December 2012, despite the yen’s 16 percent slide against the dollar over the period. Abe’s task is to ensure his growth strategy -- the third of his so-called three arrows of Abenomics -- gives companies enough of an edge over overseas rivals to boost outgoing shipments.

“The strength of recovery in global demand will play a bigger role than the currency in affecting Japanese exports,” said Koichi Fujishiro, an economist at Dai-ichi Life Research Institute in Tokyo. “Sluggish exports can be attributed to the rising ratio of overseas production.”

Japan’s Topix index of stocks followed U.S. shares lower, dropping 0.4 percent in morning trading in Tokyo, on track for a second straight decline. The yen rose 0.1 percent against the dollar to 101.78 as of 12:22 p.m. in Tokyo.

Fed Research

While a drop in a country’s currency tends to favor its exporters, the weaker yen boosts the cost of the fuel imports needed by Japanese companies to manufacture products, according to research by economists led by Mary Amiti of the Federal Reserve Bank of New York.

“Yen depreciation drives up the marginal costs of Japanese exporters,” Amiti wrote in the note posted yesterday, with Oleg Itskhoki of Princeton University and Jozef Konings at University of Leuven. This “results in a smaller share of the depreciation being passed on into their export prices.”

As part of his strategy to boost Japan’s competitiveness and attract foreign investment, Abe plans to cut the corporate tax rate in stages from the fiscal year starting in April, lowering it below 30 percent in a few years.

The task for the prime minister is to overcome opposition from vested interests as he tries to unshackle businesses in the medical and agricultural sectors. He also needs to find revenue to fund the lower corporate levy, or risk worsening the world’s heaviest debt burden.

Foreign Creditors

Imports fell 0.4 percent in May from a year earlier as consumers cut spending after a sales-tax increase in April, today’s data showed. This first drop in 19 months contributed to a goods deficit of 675.9 billion yen.

The surplus in income from overseas investments was 1.48 trillion yen in May. This excess is staving off the risk of sustained deficit in the current-account balance that could boost the government’s dependence on foreign creditors to pay for its budget shortfalls.

To contact the reporters on this story: Masaaki Iwamoto in Tokyo at; Chikako Mogi in Tokyo at

To contact the editors responsible for this story: Paul Panckhurst at Andy Sharp, Arran Scott

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