Japan’s economy fragile as record current account deficit reported

Japan reports record current account deficit

Analysts say Japan’s economy will return to growth this year

8 March 2012 Last updated at 04:37

Japan has reported a record current account deficit because of rising energy imports, as the country’s economic recovery remains fragile.

The shortfall was 437.3bn yen ($5.4bn; £3.4bn) in January, the ministry of finance said.

The measure is the broadest of how much Japan earns through international trade and overseas investments.

Also on Thursday, revised figures showed the economy contracted less than had been thought at the end of 2011.

On an annualised basis, the economy shrank 0.7% in the three months to the end of December, cabinet office data showed.

That is much less than the preliminary 2.3% contraction reported previously.
Energy imports

In the aftermath of the 11 March 2011 tsunami and earthquake that triggered a meltdown at the Fukushima nuclear reactor, Japan shut 52 out of 54 reactors.

This led to shortages of fuel for generating electricity, which meant more of it had to be imported.

Analysts said a plunge in exports due to the lunar new year holidays in China was also to blame.

The yen slipped to trade at 81.26 to the US dollar, as the trade deficit raised fears about how long Japan would be able to manage its large public debt.

However, analysts said they expected a swing to surplus soon.

“The trade balance is likely to stay in deficit this year as we import more energy to offset the declining use of nuclear power,” said Norio Miyagawa from Mizuho Securities Research and Consulting.

“The current account should swing back to a surplus as we still have a surplus in the income account. Japan should be able to finance its debt for the time being. But if it is a question of what happens five to 10 years from now, we cannot be so certain.”
Growth revised

Other indicators released on Thursday suggested that the Japanese economy was in better shape than had been thought.

The main driver of the growth revision was higher-than-expected capital expenditure, which rose 4.8%, well above the initial reading of 1.9%.

Economists predicted a return to growth this year.

“The economy will resume growing in the first quarter as exports increase and as rebuilding after the earthquake proceeds,” said Hiroshi Miyazaki from Shinkin Asset Management in Tokyo.

“There are a lot of risk factors, such as a strong yen and Europe’s debt crisis, but these risks have been receding.”

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