Weak yen unable to curb ballooning trade deficit

Weak yen unable to curb ballooning trade deficit

JAPAN - Finance Ministry statistics have cast a dark cloud over government strategy to conquer deflation and improve the balance of trade through depreciation of the yen. The figures show that the weak yen has so far failed to spur Japan's exports as much as expected.

According to the ministry's statistics released Monday, Japan incurred a record ¥13.75 trillion trade deficit in fiscal 2013, a 70 per cent increase from the previous record posted in fiscal 2012.

The ballooning trade deficit was mainly attributed to the surge of fuel costs for the nation's thermal power plants-caused by the suspension of nuclear power plants-and the sluggish growth of exports as companies continued increasing overseas production.

In fiscal 2013, imports totaled ¥84.6 trillion, the largest since fiscal 1979, when records of comparable data began, according to the statistics.

The imports of mineral fuel, which account for one-third of the nation's total imports, increased by 15.2 per cent. Crude oil, liquid natural gas and other mineral fuels are used for thermal power generation. Deals on many fuels, such as crude oil, are conducted on a dollar basis, so the depreciation of the Japanese currency pushed up the yen value of imports.

Imports of solar panels used for large-scale photovoltaic power generation also increased in fiscal 2013, contributing to the overall rise, and imports on smartphones and clothes also surged due to the rise in demand before the consumption tax hike.

Continuing overseas production

Increasing exports is the key in improving the balance of trade, but the rise of exports in fiscal 2013 was less than robust.

Exports increased 10.8 per cent, to ¥70.86 trillion, but the figure is far below the ¥85.12 trillion posted in fiscal 2007, before the collapse of Lehman Brothers.

Elevated by brisk sales to the United States, automotive exports have increased by 15.9 per cent and exceeded ¥10 trillion. However, in export volume, the increase was just a meager 1.5 per cent. The reason for the gap between the two figures was moves by Japanese automakers to increase overseas production.

In a shift of production in February, Honda Motor Co. closed a domestic factory, which produced 6,000 cars a month, and moved its production capacity to Mexico. The models include the company's mainstay Fit subcompact car.

Mitsubishi Heavy Industries Ltd., which enjoys brisk North American sales of products such as the Forester sports-utility vehicle, plans to beef up production in the United States.

In March, Hitachi Ltd. built an automobile parts assembly plant in Mexico. The company is also building an assembly plant for train carriages in Britain, as the company has received an order for 866 carriages for high-speed trains on an interurban route.

"We will increase overseas production to minimise the effect of currency fluctuation," a Hitachi official said.

For export companies the bitter memory of being plagued by a strong yen is still vivid, so they are seeking to put in place corporate structures that will not be affected by currency fluctuations. "It is unlikely that the current trend, of domestic companies expanding production and sales overseas, will change," said Masahiro Akita of Credit Suisse Securities (Japan).

The competitiveness of Japanese companies for products such as video cameras and DVD players, which had previously been a strength for Japanese manufacturers, is declining due to the rise of foreign companies.

The fact that the electrical machinery companies are shrinking their domestic production is one of the reasons many analysts are pessimistic about a rise in exports. "It is unlikely that exports will increase," said Ryutaro Kono of BNP Paribas Securities (Japan) Ltd.

The proportion of dollar-based trades is larger in imports than exports, thus the trade balance is vulnerable to the adverse effects of the weak yen.

"There is a risk that Japan will continue posting trade deficits for a while," said Koya Miyamae of SMBC Nikko Securities.

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