Japan’s current account surplus has dropped for three consecutive years since 2011 — the year when the Great East Japan Earthquake devastated the country’s northeast and had a serious negative impact on the economy.
The current account surplus for 2013 shrank to about one-eighth of the 24.93 trillion yen registered for 2007. Furthermore, the trade deficit, which has held down the current account surplus for three consecutive years, was 83 percent higher in 2013 than the record 5.81 trillion yen recorded in 2012.
Japan’s exports increased 9.0 percent to 66.97 trillion yen in 2013 from a year earlier. Imports, on the other hand, jumped 15.4 percent to 77.61 trillion yen over the same period. Yen depreciation vastly inflated the cost of imported fuels such as crude oil and liquefied natural gas (LNG) that were needed to generate power in the wake of the shutdown of Japan’s nuclear reactors. Meanwhile, the 2013 income account surplus rose to 16.53 trillion yen, the best since 1985 and up for the third straight year. Because the income account surplus covered the deficits in trade, services and other accounts, Japan has been able to maintain a current account surplus.
However, Japan actually posted its first-ever quarterly current account deficit in the last three months of 2013, with the deficit hitting a single-month record high of 638.6 billion yen in December, according to figures released by the Ministry of Finance on Feb. 10. For that October-December period, the income account surplus failed to fully cover the trade deficit.
A chronic current account deficit would weaken Japan’s ability to make money abroad and instead increase its dependence on foreign investment and overseas borrowing. Because it would become difficult to buy up government bonds just with money available at home, if Japan were to have “twin deficits” — current account and fiscal deficits — it would quickly increase its dependence on money from abroad. If foreign investors were to sell off Japanese government bonds altogether, long-term interest rates would surge (government bond prices would plummet), making it impossible for the government to borrow money or service its debt. The situation could be so severe as to trigger a Japanese financial collapse.
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