Japan: current trade deficit analysis
Published 19 June 2014
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0.1 Detail
The Finance Ministry reported today that Japan’s May trade balance was 909 bn yen (£5.3bn) in deficit. This was the 23rd consecutive monthly deficit, albeit the second month in a row that it has decreased over a year. Exports fell by 2.7% year over year (YoY) to 5.6 trillion yen (£32bn) while imports declined by 3.6% YoY to 6.5 trillion yen (£38bn). This was the first time that exports and imports had fallen YoY for 15 and 19 months respectively. Weaknesses in exports to Asia and the US were mainly responsible for the fall in overall exports. But exports to the EU rose for the 12th consecutive month (14.5% YoY).
By product, transportation equipment exports fell 7.3% YoY. A sharp fall in fuel imports (-9.4% YoY) was mainly responsible for the decline in overall imports. Nonetheless, there has been an overall surge in fuel imports amid the ongoing shutdown in nuclear reactors after the Fukushima incident in 2011. Fuel imports this May were 1.94 trillion yen (£11bn), a 40% increase (0.55 trillion yen) from those in May 2010.
The Cabinet approved the ‘Energy White Paper 2013’ on 17 June. The White Paper estimates that the shutdown of nuclear reactors accounts for 3.6 trillion yen (£21bn) of the increase in fuel imports value, out of a 10 trillion yen increase in overall fuel imports in 2013 compared to 2010. This contributed to the largest ever trade deficit in 2013. Japan’s electricity dependency rate on fossil fuels shot up to 88%, the highest ever level.
Separately, the Bank of Japan (BOJ) released its quarterly flow of funds data today. Household financial assets increased 3.3% YoY to 1630 trillion yen (£9.4 trillion). Corporate cash deposits increased 4.1% YoY to 232 trillion yen (£1.3 trillion) as of the end of March 2014. The BOJ’s Japanese Government Bonds (JGBs) holdings expanded 57.2% YoY to 201 trillion yen. This was the largest ever level, accounting for 20.1% of all outstanding JGBs and exceeding holdings by insurers. Only 8.4% of JGBs were held by foreigners.
0.2 Comment
Income (or national wealth) outflow for surging imported fuel bills is a serious concern for policy makers. The government’s draft Growth Strategy (due later this month) therefore states that “The Government will resume operating nuclear reactors as long as they pass the Nuclear Regulation Authority’s safety checks”. External imbalances due to a record trade deficit are believed by analysts to have various negative repercussions on Japan’s macroeconomic fundamentals.
Following continuing JGB purchases by the BOJ, private banks’ share of JGB holdings has continued to fall from 13.7% in the end of 2013 to 13.0% at the end of March 2014. This is in line with BOJ plans to encourage financial institutions to invest their money into riskier assets. However, bank lending (stock) is only growing slowly (2.4% YoY in the latest figures) and banks still tend to keep their money in the BOJ current accounts. The current account balance almost doubled to 133.6 trillion yen (£772bn) over a year, the highest ever level, at the end of May. So despite ample liquidity, we have yet to see a major boost in lending to firms for more investment.
0.3 Disclaimer
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