For export-dependent Japan, a trade deficit
By Chico Harlan,
TOKYO — After years of using exports to power its economy, Japan has reported its first trade deficit in more than three decades, underscoring the mounting challenges for an economy already slowed by natural and nuclear disasters.
The country logged a 2.49 trillion yen trade deficit in 2011, the Finance Ministry announced Wednesday.
The numbers show that Japan’s trade, for the first time since 1980, has moved into the red — a startling change for a country whose best-known companies, such as Toyota and Sony, depend on sales overseas.
Partly, the deficit reflects temporary factors, notably the March 11 earthquake and more recent flooding in Thailand, both of which disrupted the global supply chain. But it also underscores a fundamental and long-lasting change for the world’s third-largest economy, coming as demand slows in China and in European nations, and as energy-strapped Japan imports more fossil fuels to ease power shortages stemming from idled nuclear plants. Economists say Japan could face trade deficits for several years to come.
The latest projections coincided with a revised forecast from Japan’s central bank, which said Tuesday that the Japanese economy would shrink more than previously expected in fiscal 2011, which ends March 31. The Bank of Japan projected that the 2011 real gross domestic product would fall 0.4 percent, compared with a 0.3 contraction estimate in October. It also said Japan’s economy would grow only 2.0 percent, not 2.2 percent, in 2012. The bank made no changes to its monetary policy, holding interest rates effectively at zero.
“Regarding risks to the economic outlook,” the bank said in a statement, “the sovereign debt problem in Europe could result in weaker growth, not only in the European economy but also in the global economy, particularly through its effects on global financial markets.”
In recent months, the bank noted, Japan’s economy had been handcuffed by a strong yen, whose appreciation makes Japanese products more expensive overseas. In October, the yen hit a record high against the dollar, and it traded Tuesday at roughly 77 against the dollar, compared with more than 85 in April.
The yen’s strength does carry some advantages — it gives Japanese companies more power to purchase and acquire overseas assets, for instance — but it has also encouraged those same companies to relocate entirely. Politicians now speak about the potential for a “hollowing out” of Japanese industry, with manufacturing giants maintaining only modest bases in Japan while building factories in Thailand, China and Vietnam.
This process, already in progress, makes it all the harder for Japan to recover its export dominance. Signs of the shift to foreign markets can be seen particularly in the auto industry. According to figures by J.P. Morgan Chase, Japanese companies will produce roughly 75 percent of their cars abroad by 2014, compared with 67 percent last year.
In recent years, Japan has sharply increased its trade volume with China, but only in 2009 did China overtake the United States as the largest buyer of Japanese exports. Trade pressures could push Tokyo even closer to Beijing, using China’s usually reliable growth to make up for tightening markets in the West.
Japan remains the world’s largest net foreign creditor, so its income balance still outweighs its trade deficit. That net surplus is critical, allowing Japan to keep borrowing costs among the world’s lowest. But if Japan cannot maintain that surplus, borrowing will become more expensive, raising fears about a European-style crisis. Japan’s debt is more than twice the size of its GDP.
Investor confidence in Japan could be rattled if the country cannot raise its consumption tax, the linchpin of Prime Minister Yoshihiko Noda’s strategy to prevent a Greece-style crisis. Noda appeared in parliament Tuesday and emphasized the need for Japan to raise the tax from the current 5 percent to 10 percent by 2015.
“As global financial markets continue to dominate, once ‘national credibility’ is lost it cannot be undone,” Noda said. “This is manifestly apparent in the current situation in Europe.”
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