Export leader Japan sees trade balance books in red for first time in three decades

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Japanese national flag flies in front of cranes at an industrial port in Tokyo. Japan's economy contracted at a slower pace than expected in the second quarter as output and exports recovered from the deadly earthquake in March, but a soaring yen and slowing global growth cloud the outlook for an economy emerging from recession. Photo - Issei Kato/Reuters

Reports coming from Japan suggest the world’s third biggest economy recorded its first ever trade deficit in more than three decades due to growing energy imports and slowing of exports after last year’s Fukushima nuclear disaster.

Official trade figures due to be released on Wednesday are expected to show that Asia’s biggest economy suffered from a trade deficit for the first time since 1980 as power generation companies sought fossil fuels to make up for the loss of nuclear power.

Economists believe Japan’s trade will be in deficit for years to come as it reels from the Fukushima nuclear catastrophe that released radiation into the atmosphere and contaminated the region’s resources. It also forced other nuclear power stations to shut down amid public safety concerns.

However, hopes of a trade surplus are high but analysts believe it will not be as good as it used to be given the rise in the value of yen which will render Japanese exports uncompetitive and force manufacturers to seek new pastures.

“Japan can continue to export goods, but if you focus exclusively on the trade balance, then the days as an exporter are ending,” Seiji Adachi, senior economist at Deutsche Securities, said in an interview with Reuters.

The reputation as world’s export leader and ability to offset a large public debt by making use of its huge international trade surpluses is set to suffer from serious challenges, thanks to the turbulence in the global markets.

“Last year I thought we could continue to finance our debt for 10 years. Now I think it’s seven years,” the Japanese economist added. He forecasted a deficit of 2.4 trillion yen ($31.2 billion) for 2011, which would shrink to 1.9 trillion yen ($24.57 billion) in 2012 and then widen again to 2.2 trillion yen ($28.45 billion) in 2013.

A sudden jump in oil prices back in 1980 also caused Tokyo a record trade deficit of 2.6 trillion yen ($33.62 billion) deficit. Since then Japan boosted its exports including its affordable cars, walkmans, mp3 players, gaming consoles, computer chips and other electronic goods that pushed trade surplus to record heights.

SURGE

Japan, the world’s third biggest oil consumer, is suffering from the record increase of oil prices due to instability in the Middle East. The shutdown of country’s many nuclear power plants after the 11 March earthquake and tsunami led to a record jump in the import of liquefied natural gas used as a substitute to nuclear energy.

The size of Japanese economy is around $5 trillion whereas its sovereign debt stands at around $10 trillion, the biggest among industrialised nations. Analysts are skeptic if years of trade surpluses and a high savings rate in the country will help to service the debt mountain despite the fact that Japan still enjoys its position as a creditor thanks to its trade surplus’ consistency.

Tokyo has avoided the sell-off in its sovereign debt that has become common in debt-stricken Europe.

Many Japanese economists worry that an ageing Japanese population, drop in birth rates and tumbling savings rate could convert surpluses into deficits. The populace could soon see an increase in taxes and energy bills and a decrease in public spending as part of the government’s bid to cut outstanding sovereign debt.

Many Japanese companies have expressed their frustration over the lack of a well-defined energy policy drafted by the government that ensures the safety and stability of energy supplies and prices.

Nippon Keidanren, the country’s largest business lobby, ruled out annual pay rises due to uncertain economic conditions and concerns about energy, a strong yen and the manufacturing shift overseas.

“The wild card is energy costs,” Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co., said while adding: “What we really need is some type of revolution to make ourselves more energy efficient. In that sense, you could say the government’s energy policy is contributing to all of this.”

“The trade deficit could peak out at 5 trillion yen in 2015 due to expensive energy imports,” Muto predicted.

(By Moign Khawaja with input from Reuters)

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