A one off or a sign of the enormous changes being forced upon Japan and other major exporters by the financial crunch?
We won’t know for a while but there was news yesterday that Japan has not only had its first current account deficit in 13 years (joining the likes of Australia and the US in the deficit boat), but it was also the biggest ever.
We already know the country has run up a succession of trade deficits in recent months, culminating with January’s flood of red ink. In fact in the six months to the end of January the trade deficit was running at an annualised rate of $US39 billion.
But as the trade deficit worsened, Japan’s income account (services income and the flow of offshore dividends etc) kept the balance of payments in a small, but shrinking surplus.
In fact a year ago the stream of foreign income payments exceeded the trade surplus which had been shrunk by the soaring cost of oil.
Now, with a sharp drop in the income surplus (down about 31% on a year earlier, thanks to the sharp rise in the value of the yen) the country has produced a deficit of 172.8 billion yen, or $US1.76 billion ($A2.74 billion) in January.
The figure compared with a surplus of 1.164 trillion ($A18.43 billion) yen a year earlier, according to the finance ministry.
It was the first current account deficit since January 1996, the government said.
As previously reported, exports dived 46.3% (a bit more than the 45.7% initially reported last week) from a year earlier to 3.282 trillion yen ($A52 billion), while imports fell 31.7% to 4.127 trillion yen ($A65.3 billion).
In comparison, Australia in January had a higher than expected surplus thanks to the slowdown in the economy (and the slump in oil prices) cutting imports faster than the slowdown in exports.
Japan was the reverse as the rapid slide in exports and demand for products such as computers, cars, car parts, consumer electronics, etc outstripped the slump in imports (including lower oil prices, which have been driven sharply lower than in Australia than the higher value of the yen).
The yen’s recent reversal and weakness might mean some better news for exports and the income account, but demand for the country’s goods is still falling. But the currency is still higher than a year ago, so the impact will remain for some time.
Car companies are still cutting production forecasts for the year starting April 1, as are steel companies, electronics groups, etc as the slowdown in the US and China hurt.
Other figures issued on Monday showed bank lending rose in February from February last year.
But while this small easing in tensions in the Japanese credit markets is good news, the continuing plunge in exports, the high yen, falling and overseas income, will hurt the economy for months to come.
Many big Japanese companies are finding it trough accessing borrowings in markets like the US, so that’s why the Japanese Government is using $US5 billion of its reserves to lend to these groups.
Unlike Australia and the US where the fears generated by the slump have seen household saving rise to recent highs of 5% (in the US) and 8.5% (in Australia) Japanese’s savings ratio in the same 4th quarter of 2008 was close to 1%, down from 18% in 1980.
There will be more reminders of Japan’s predicament this week with the updated 4th quarter growth figures on Thursday and the update of the January industrial production figures on Friday. The earlier estimate showed a record 10% fall.
With the stockmarket near 26-year lows and the country’s key export industries suffering, the government and the central bank are under pressure to boost domestic consumption and spur corporate lending.
