May 12, 2014 3:00 pm JST

Japan's current-account surplus may edge up in fiscal 2014

TOKYO -- Japan's current-account surplus is likely to grow moderately in fiscal 2014, which started April 1, due to weaker imports and an increase in dividends and other income from abroad.

     The government announced Monday that the current-account surplus stood at 789.9 billion yen ($7.69 billion) in fiscal 2013, the lowest level since comparable figures became available in fiscal 1985.

     Japanese consumers rushed to make purchases ahead of the consumption tax hike on April 1, pushing up the nation's overall imports. The trade balance, a key component of the current account, is now in the red but may improve due to a decline in imports. In addition, there is a growing surplus in the primary income balance, a second key component of the current account that includes dividends from overseas subsidiaries of Japanese companies.

     Japan's deficit in the services balance, meanwhile, is expected to shrink as the weakening yen attracts more foreign tourists to the country, further pushing up the current-account surplus in fiscal 2014.

     But Japan is likely to continue suffering a trade deficit, at least for a while, due to stubbornly high levels of fuel imports for thermal power generation following the 2011 disaster at the Fukushima Daiichi nuclear plant. All of Japan's nuclear power plants remain idled due to safety concerns.

     Japan's economic growth is likely to slow in fiscal 2014, compared with the previous year, due largely to the effects of the consumption tax hike. Though the nation's current-account surplus may expand in fiscal 2014, it is expected to remain at relatively low levels. This has many analysts urgently calling for Japan to achieve fiscal consolidation and promote structural reforms to attract more foreign investment.

Intractable trade deficit

Japan posted a 2.2 trillion yen trade deficit in fiscal 2011, which started only a few weeks after the massive earthquake and tsunami hit the northeastern region of Tohoku. The annual trade deficit has since continued to balloon, exceeding 10 trillion yen in fiscal 2013 and reinforcing the view that a trade deficit in Japan is now the norm.

     Significant changes have taken place to Japan's manufacturing activities in recent years, creating headwinds for exports. Numerous Japanese manufacturers have focused on investing in emerging markets that are expected to grow in the medium term. They have also reviewed their global supply chains since the natural disasters of March 11, 2011. Both of these trends remain unchanged despite a weakening of the yen.

     Many Japanese manufacturers now export only high-end products, and they tend to avoid cutting prices for their products abroad despite a weaker yen, making it harder for Japanese export volumes to grow. Though many export-reliant companies reported strong earnings for fiscal 2013, Japan's overall export volume remained almost flat in the last fiscal year.

     Japanese automakers are stepping up efforts to assemble more of their vehicles in or near overseas markets and show no signs of shifting any of their production back to Japan, even after the yen's excessive strength was corrected.

     Fuji Heavy Industries already produces a relatively high percentage of its vehicles at home. President Yasuyuki Yoshinaga said, "We have no plans to increase exports any further."

     Japan's primary-income balance hit a record high in fiscal 2013. A growing number of Japanese firms are now using dividends from their overseas subsidiaries to pay dividends to their own shareholders or finance their capital investments.

     Mitsubishi Motors received 44.6 billion yen in dividends from Mitsubishi Motors (Thailand), one of its consolidated subsidiaries, in fiscal 2013. This contributed to the parent company's financial performance.

     Seiko Epson posted a record group net profit of 83.6 billion yen in fiscal 2013 due partly to increased dividends from its overseas subsidiaries amid the yen's weakness, reversing a net loss of 10 billion yen in the previous fiscal year.

(Nikkei)