Japan Trade Deficit Swells to Record as Import Costs Surge

Japan’s trade deficit widened to a record in January as surging import costs weigh on Prime Minister Shinzo Abe’s campaign to drive a sustained recovery.

The 2.79 trillion yen ($27.3 billion) shortfall reported by the Ministry of Finance in Tokyo today exceeded the 2.49 trillion yen median estimate in a Bloomberg News survey of 28 economists. Imports rose 25 percent from a year earlier and outbound shipments gained 9.5 percent.

Declines in the yen are driving up import costs as the nation’s nuclear reactors remain shuttered, while exports have seen only limited gains from the currency’s slide of more than 20 percent against the dollar in the past two years. The trade deficit contributed to Japan’s economy growing a less-than-forecast 1 percent in the fourth quarter, underscoring the risk that Abenomics may falter after a sales-tax increase in April.

“Japan is paying the price for the transformation of its energy policy,” said Naohiro Niimura, a partner at Market Risk Advisory Co. in Tokyo. “This trend in Japan’s trade balance will continue for a while, eroding the strength of the economy little by little.”

The trade deficit with China was the widest in comparable data back to 1979. The lunar New Year may have weighed on exports to China and other Asian nations in January, an official said in a briefing after the release.

The yen slid to a five-year low of 105.44 per dollar on Jan. 2 and is down more than 8 percent in the past 12 months. The Japanese currency rose 0.2 percent to 102.24 as of 9:58 a.m., and the Topix stock index was down 0.8 percent.

Export Volumes

Ahead of today’s release, analysts’ median forecasts were for an 12.7 percent gain in exports and an 22.7 percent increase in imports.

By volume, exports fell 0.2 percent in January, the first decline in four months, while imports gained 8 percent.

“The effect of the yen’s depreciation on exports has been so slow,” former Bank of Japan Deputy Governor Kazumasa Iwata told reporters in Tokyo yesterday. Iwata also highlighted declines in the competitiveness of Japanese industries and production shifting overseas.

Swelling energy imports are contributing to the trade shortfall, with all of Japan’s 48 operable reactors shut for inspections after the 2011 Fukushima nuclear crisis, and no set date for restarting them. Electric utilities’ output from fossil-fuel thermal plants rose to a record in January.

Crude oil imports rose 28.1 percent from a year earlier, and inward shipments of liquefied natural gas increased 21.4 percent.

Annual Record

Today’s data follow a record annual trade deficit last year.

“The trade deficit could widen further through March due to demand picking up ahead of the sales-tax increase,” Koya Miyamae, an economist at SMBC Nikko Securities Inc. in Tokyo, wrote in an e-mailed note after the release. The shortfall could shrink from April as domestic demand weakens, though nuclear-plant closures and the diminished boost to exporters from the weaker yen may mean that deficits continue, he said.

Central bank Governor Haruhiko Kuroda says he’s prepared to do whatever is needed to support Japan’s recovery and drag the nation out of 15 years of deflation.

On Feb. 18, the BOJ tweaked its policies by doubling a funding tool to 7 trillion yen ($68 billion) and letting individual banks borrow twice as much low-interest money as previously under a second facility. It left unchanged a pledge to expand the monetary base by 60 trillion to 70 trillion yen per year.

Twenty-five of 34 economists forecast the BOJ will add to stimulus by the end of September, with 13 of those projecting action by the end of June, according to a Bloomberg News survey conducted Feb. 6-12.

(Updates with China trade details in fifth paragraph.)
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