Japan Posts Record Low Current-Account Surplus in Fiscal ’13

Japan’s current-account surplus shrank last fiscal year to the smallest on record, highlighting challenges for Prime Minister Shinzo Abe in driving a recovery in the world’s third-largest economy.

The surplus of 789.9 billion yen ($7.74 billion) in the year ended March was the smallest in data back to 1985, the Ministry of Finance said in Tokyo today. A 14 percent surge in primary income from overseas investments helped make up for a shortfall in the balance of trade and services that suffered from weak exports and a higher import bill.

A slide into sustained deficits in Japan’s widest gauge of trade could make the government more reliant on foreign funding to service the world’s biggest debt burden. Keeping the balance in the black depends on how successful Japanese companies are in boosting exports following the yen’s slide and their ability to generate higher returns on overseas investments, according to economist Izumi Devalier.

“Japan Inc.’s return on portfolio investments is currently low as they are often made in securities such as Treasuries,” said Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong. “The more long-term challenge is whether they can get bigger returns through means such as stepping up overseas M&As.”

Devalier cited Softbank Inc.’s $22 billion purchase of Sprint Corp. last year as an example of how corporate action could help improve Japan’s current-account balance.

Yen Slide

The yen’s 15 percent decline against the dollar since the start of 2013 has inflated the value of imported energy as the nation’s nuclear reactors remain shuttered after the Fukushima disaster in March 2011. At the same time, exporters are not using the advantage of the yen’s slide to bolster shipments, according to Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo.

“The gap between the weak external demand and robust domestic demand lies at the heart of the deterioration in Japan’s external balance,” Okubo wrote in an e-mailed note after the release.

The Japanese currency was down 0.1 percent at 101.96 per dollar as of 10:58 a.m.

March Surplus

Japan posted a 116.4 billion yen current-account surplus for March, narrowing from 1.28 trillion yen a year earlier and a swing from a record deficit in January. The median forecast in a Bloomberg News survey of 25 economists was for a 347.7 billion yen surplus.

Seasonally adjusted, Japan registered a deficit of 782.9 billion yen, the largest in comparable data back to at least 1996.

Consumers splurged on items such as refrigerators and computers before the 3 percentage point tax rise, helping to drive up imports in March.

Imports rose 23 percent from a year earlier and exports gained 6.2 percent, while the surplus in primary income from overseas investments increased 1.6 percent.

The higher sales tax is likely to cool domestic demand, though any pick-up in exports is likely to be moderate, said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co. in Tokyo.

Nation’s Debt

A surplus in the current account balance generates income that helps Japan’s government manage a national debt, which rose to a record 1,025 trillion yen at the end of December.

“It’d be a problem if the government fails to demonstrate a clear path for budget consolidation should Japan fall into a structural current account deficit,” Daiwa’s Saito said before the release. “In such a case, foreigners will require risk premiums on Japanese government bonds and long-term yields will rise.”

The yield on Japan’s 10-year government bonds is about 0.6 percent, the lowest of any nation for the maturity and down about 18 basis points from December 2012, when Abe took office pledging monetary stimulus to beat deflation.

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