February 10, 2014 10:00 am JST

Japan 2013 Current Account Surplus Smallest on Record

TOKYO (Dow Jones) -- Japan's current account posted its smallest surplus in nearly three decades in 2013, as energy needs and greater domestic demand under the government's growth strategy pushed up imports.

     The balance of payments figures, which measure net receipts from trade and investment with the rest of the world, produced a surplus of Yen3.31 trillion ($32.3 billion), down 31.5% from last year and the smallest under the existing method of calculation that began in 1985.

     For December, the current account suffered its third straight deficit with a shortfall of Yen638.6 billion, as the nation's growing trade shortfalls continued to outpace income from overseas investments.

     The growing trade deficit has been a surprise to many economists, who had expected that the near 20% fall in the value of the yen last year would help boost the export sector. But exports have remained sluggish, while greater domestic demand has pushed up purchases of products from overseas.

     In addition, the country continues to import large quantities of fossil fuels to replace electricity production that previously came from nuclear power. Following the March 2011 nuclear plant disaster at Fukushima, the nation's 48 nuclear reactors remain off-line, with no clear prospect for when they may be restarted.

     The latest data show that imports totaled Yen77 trillion in 2013, the highest on record.

     Mizuho Research Institute economist Takuma Nakamura said that the current account won't fall permanently into the red. He said that income from Japan's significant overseas assets and an improvement in the trade deficit as overseas economies pick up will "make it unlikely that Japan will post sustained deficits." But he added that very large surpluses seen in the early 2000s aren't expected to return.  

     Some economists say that continuing deficits may be a sign that "Abenomics" under Prime Minister Shinzo Abe is actually succeeding. Unlike previous recoveries in Japan, his policy of much greater monetary easing and bringing inflation into the economy is aimed more at domestic consumption than in pushing more goods overseas.

     "If Abenomics succeeds, domestic demand-led economic growth will be achieved, making current account deficits a more regular feature of the Japanese economy," predicts Koya Miyamae, economist with SMBC Nikko Securities.

     Recent jobs and inflation data have pointed to a strengthening economy, with the unemployment rate dropping to 3.7% while The core consumer-price index climbed 1.3% in December from a year earlier.

     But the fragility of the economic recovery was made patently clear last week when Japanese stocks tumbled more than 4% in a single day on the U.S. move to scale back easy money and on concern about its impact on emerging economies.

     Japan's stock market rally has been almost entirely fueled by buying by foreign investors. But their purchases could reverse as soon as economic conditions change in their home markets in the U.S. and Europe. That could undercut consumer confidence domestically and provide more headwinds for the government's economic program.