January 27th, 2013
Written by Jillian Friesen
Econintersect: On Thursday, Japan announced a trade deficit of $78 billion for 2012. This is the second time Japan has not produced a trade surplus in 30 years. The power of Japanese exports have sustained Japan for decades. Rising costs of fuel, a decline in machinery exports and elevated government spending are to blame and have continued to add to the deficit. The Japanese economy is the third largest in the world and has grown to that position because it has long been blessed with trade surpluses.
For a while, Japan was able to support its enormous debt on the shoulders of its exports. Foreign investment was not necessary. Things changed with the massive economic fallout in the U.S. and around the world as the markets for Japanese goods were damaged. Then the Fukushima disaster shut down Japan's nuclear reactors for a period, increasing its energy imports. Japan currently imports roughly 84% of its energy requirements. The recent trade disputes with its neighbor China have also not helped Japan's economic situation.
There is also the continued rise in the value of the yen. Currently, the yen (JPY) is up against the U.S. dollar. A strong yen is fueling the Japanese trade deficit by making Japanese exports less appealing to the global market. Japanese executives at Davos recently expressed a need for the yen to drop in value.
During the conference, Atsutoshi Nishida from Toshiba Corporation stated,
"A strong yen, a high corporate tax rate and other issues such as the high cost of electricity following the shutdown of most of the country’s nuclear power plants has resulted in Toshiba having to move manufacturing jobs outside Japan to remain competitive."
Japan's central government recently announced its plans of doubling the inflation target to 2% and more monetary stimulus. This message does not come as much as a surpise. Japan's new prime minister, Shinzo Abe, is focused on bringing Japan out of its deflationary state. It is an uphill battle. Japanese exports to China fell by 10.8% with recent turmoil in the region. Exports to the EU fell by 15%. On top of all this energy prices have risen as well.
In 2011, Japan recorded a 2.56 trillion yen deficit. This number has jumped 170% to land at its current standing of 6.9 trillion yen.
A slump in the Japanese economy would hurt the nations it imports from as well. In 2011, Japan accounted for over 28% of Brunei's exports. This figure is mostly related to Japanese fuel and energy consumption. Below is a chart of the countries most dependent upon Japanese trade.
Graph: The Economist
It's not all bad news however. Exports to the United States climed 11.7%. This gave Japan a trade surplus of around $58 billion. Many Japanese government officials and global economic analysts are banking on the global economy picking up in the near future, helping to decrease the Japanese deficit. Quoting Tatsushi Shikano:
"As exports pick up due to gradual recovery in the global economy, Japan's trade deficit is likely to shrink in the coming months."
- The New York Times: Japan Trade Deficit was $78 Billion in 2012
- The Economist: Who Relies on Japan?
- South China Morning Post: Japanese Execs at Davos Bemoan Strong Yen, China Ties