Record Japan trade deficit highlights cheap yen woes

TOKYO: Japan's trade deficit swelled to a record in 2013, data showed Monday, as once bumper surpluses disappear under the weight of soaring post-Fukushima energy bills, an imbalance stoked by premier Shinzo Abe's cheap-yen policies.

The currency has lost about a quarter of its value against the dollar since late 2012 owing to a policy blitz dubbed Abenomics, which meshes government spending with massive central bank monetary easing – a plan aimed at reviving the world's third-largest economy.

The yen's decline inflated profits at exporters such as Sony and Toyota, and kicked off a stock-market rally that saw the Nikkei index surge 57% last year, its best run in over four decades.

The weaker currency also gives exporters more flexibility to lower prices on the televisions, cars and computer chips that they sell abroad.

But after suffering through years of a record-high yen, most firms have not slashed overseas prices, and the now-weaker unit has jacked up Japan's energy costs.

Imports of pricey fossil fuels have surged since the 2011 atomic crisis forced the shutdown of nuclear reactors that once supplied a third of the nation's power.

"There are no signs that the weak yen is raising the competitiveness of Japanese exports," said Capital Economics, noting the country's share of global exports has changed little despite the yen's plunge.

"A major reason is that exporters have been reluctant to lower export prices," it added.

And despite his sweeping national elections on a pledge to kick-start the economy, the impact of Abe's policies has largely stopped at the boardroom door. A weekend poll by Kyodo News showed nearly three-quarters of Japanese people felt no effect from the economic growth drive, while Abe's calls for firms to hike wages so consumers spend more have gone largely unheeded so far.

Critics say he must follow through on structural reforms to the economy, including shaking up labour markets and signing free-trade deals.

DEFICITS TO CONTINUE

Official data Monday showed Japan's trade deficit swelled to a record US$112bil last year, marking the biggest deficit since comparable data started in 1979. The December figure alone doubled from a year earlier.

Exports rose 9.5% to 69.79 trillion yen, their first increase in three years, but that was offset by a 15% jump in imports to a record 81.26 trillion yen.

Shipments to China rose 9.7% as demand recovered following a consumer boycott on Japanese brands that was linked to a Tokyo-Beijing diplomatic row. Exports to the key US and European markets also improved.

Taro Saito, senior economist at NLI Research Institute, said Japan's yawning trade deficit would "continue for quite some time".

When the yen was trading around 80 to the dollar in recent years, many firms shifted production away from Japan to cheaper bases overseas, diluting the benefits of a now-cheap currency, Saito said.

The unit has weakened to more than 100 against the dollar, well down from mid-70 levels in late 2012.

"It is getting difficult for Japan to boost exports because companies have shifted a lot of their production to foreign countries," Saito added. "So, the equation of a cheaper yen equalling a rise in exports in not very true anymore."

Japan has seen a mixed bag of data, but Tokyo's bid to boost the economy appears in some respects to be taking hold.

Growth in the first half of 2013 outstripped other G7 nations, although that pace slowed in the third quarter, while November inflation data suggested the Bank of Japan was getting closer to its goal of 2% sustained inflation in two years.

Last week, central bank chief Haruhiko Kuroda said its monetary easing blitz was winning the war on deflation as policymakers held off announcing any fresh stimulus.

But analysts say the BoJ could be forced to expand the asset-buying plan later this year to counter the effects of an April sales tax hike.

The rate rise, seen as crucial to bringing down Japan's eye-watering national debt, has stoked fears of a damaging slowdown in consumer demand – AFP.