TOKYO -- Japan imported more products than it exported for the third straight year in 2013, as a shrinking domestic manufacturing sector and fierce competition with Asia jeopardize its status as an exporter nation.
The country's trade deficit grew to a record 11.47 trillion yen ($111.05 billion), 4.5 trillion yen larger than in 2012, according to the Ministry of Finance. Export volume declined 1.5% despite the yen falling more than 20% against the dollar.
Nuclear reactor shutdowns drove fuel imports higher, contributing more than 2.8 trillion yen to the deterioration. The economic recovery boosted consumer demand for imported products as well. Clothing imports swelled 21.1%, while those for smartphones and other telecommunications equipment rose 24.6%.
As a rule, a softer yen temporarily inflates the dollar-denominated value of imports. But if the currency stays weak, the resulting increase in exports improves the trade balance. Based on this rule, the prevailing view held that the deficit would begun shrinking in the latter half of 2013.
Instead, it kept growing. The seasonally adjusted deficit for the October-December quarter stood at 3.51 trillion yen for two consecutive quarters of expansion.
A structural shift occurring in the manufacturing sector is behind shrinkingJapanese exports. At seventh place, Sony is the only Japanese smartphone maker to perform well in the global market, but it has already exited from domestic production of the devices. Imports account for half of all communication equipment distributed in Japan, according to estimates by Citigroup Global Markets Japan. The figure is approaching the level seen in the textile industry, which imports more than half its products.
Asian businesses have also become more competitive in terms of quality, putting another dent in Japanese exports. Companies in emerging markets ramped up steel and chemical production, contributing to a global oversupply. And an economic slowdown in China and other emerging countries is keeping both markets sluggish.
With domestic demand brisk, electric furnace steelmaker Tokyo Steel Mfg. decided last summer to stop exporting products. Domestic demand fueled by government spending has concealed the slump in exports.
Global exports in 2013 reflect changes in Japanese companies' standing as well as world trends.
Japan logged an electrical equipment trade surplus of 1.7 trillion yen, down 1.2 trillion yen, as waning competitiveness spurred a shift to overseas production. Meanwhile, Japan grew even more dependent on vehicle exports as the auto trade surplus climbed 1 trillion yen to 9.3 trillion yen.
Emerging markets are playing less of a role. Exports to the U.S., particularly vehicles, have soared thanks to a stronger economy and softer yen. U.S.-bound exports totaled 12.93 trillion yen, topping shipments to China, which reached 12.62 trillion yen, for the first time in five years.
Many private-sector research groups expect the deficit to contract from 2014 on as the spring consumption tax hike cools consumer demand, pushing down imports. Exports may also rise gradually if the yen stays around 100 to the dollar.
"We'll return to a trade surplus around 2016," said Junichi Makino at SMBC Nikko Securities.
But beyond car shipments to the U.S., few other potential export drivers exist. As long as Japan lacks innovative products to export, regaining its status as an export juggernaut could prove difficult.
Higher corporate earnings, thanks to a competitive edge sharpened by a soft yen, have lifted Japan's economy. But a continued trade deficit may cause side effects, such as higher priced imports.