Japan has announced that it ran a full-year trade deficit last year – its first since 1980. Imports exceeded exports by ¥2.5trn ($32bn).
What the commentators said
This is “a poignant moment for a once unbeatable powerhouse”, said Ambrose Evans-Pritchard in The Daily Telegraph. Japan “built its economic miracle on exports of cars, computers, cameras and machine tools”. Last year’s deficit was partly due to temporary factors, such as the tsunami, which hit production and exports. With many nuclear-power plants shut down over safety fears, oil and gas imports jumped sharply.
But trade deficits look set to be a “chronic feature” of Japan’s economy in the next few years, said Takuji Okubo of Société Générale. South Korean and Chinese firms are becoming increasingly competitive. Many nuclear plants are likely to stay closed while weak global demand and the strong yen – sought-after when interest rates are low elsewhere and risk aversion is high – are factors likely to endure.
The strong yen is already encouraging firms to move production outside Japan. According to JP Morgan, 76% of Japanese car firms’ production will be based overseas by 2014. An ageing population implies lower overall production, as the workforce shrinks, and higher consumption of imported goods.
Japan’s trade may be in the red, but its current account, a wider marker of its dealings with the rest of the world, remains in surplus to the tune of 2% of GDP. The current account includes returns on Japan’s huge holdings of assets abroad. So it’s a gauge of the country’s overall cash surplus. But most analysts “seem to differ only on the timing of Japan’s move to a current-account deficit”, said Ben McLannahan in the FT.
Not only are exports dwindling, but the country is set to run down its cash pile, said The Economist. An ageing population draws down assets as it reaches retirement age, while the government continues to spend more than it earns. With its savings depleted, and the current account thus in deficit, Japan will depend on global savings to fund its world-beating public debt pile, which is twice the size of the economy.
Locals currently hold virtually all of its public debt. If it comes to rely more on foreign money, interest rates are likely to rise as overseas investors demand better returns to make up for the risk. That could trigger a Europe-style debt meltdown. A “catastrophe”, says The Economist, may be only a few years away.