Japan's current-account deficit widens to record in November as imports climbed, underscoring challenges to country's economic rebound; shortfall of 592.8B yen exceeded forecast of 368.9B yen

, January 14, 2014 () – Japan’s current-account deficit widened to a record in November as imports climbed, underscoring challenges for Prime Minister Shinzo Abe as he tries to drive a sustained economic rebound.

The 592.8 billion yen ($5.7 billion) shortfall in the widest measure of trade, reported by the Ministry of Finance in Tokyo today, was larger than the median forecast of 368.9 billion yen in a Bloomberg News survey of 24 economists. The deficit is the biggest in comparable data back to 1985.

Weakness in the yen and extra demand for energy because of nuclear-plant shutdowns are driving up Japan’s import bill, highlighting drags on the recovery that will also include a sales-tax increase in April. A longer-term risk for the nation is any shift to a sustained deficit that would undermine investor confidence in Japanese government debt.

“The record deficit reflects a change in Japan’s current economic make-up” with its lack of nuclear power and a weaker yen, said Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group Plc in Tokyo, adding that the shortfalls in the balance may provide further cause for the yen to fall.

Japanese stocks fell as markets in Tokyo reopened after a three-day weekend in which the yen climbed against the dollar. The yen slipped about 0.4 percent to 103.46 per dollar as of 11:26 a.m. in Tokyo, down about 13 percent in the past 12 months.

Goldman’s Take

Today’s numbers underscore the risk that Japan could switch in coming years to becoming a deficit nation that needs funding from abroad to service a debt burden that is more than twice the size of the economy. For now, a surplus in income from overseas is preventing such a shift.

“We have to take this problem seriously and solve the underlying causes,” Economy Minister Akira Amari told reporters after the release. “Japan would have to depend on foreign investment to finance its budget shortfall if it allows its current-account balance to remain in deficit.”

Naohiko Baba, an economist at Goldman Sachs Group Inc. in Tokyo, says that export volumes and wages will be key economic indicators in a “critical year for Abenomics.” Growth in shipment volumes as a result of weakness in the yen is weaker than “would be expected by the market so far,” Baba said in a note yesterday.

While Baba expects improvements in exports because of a U.S.-led global recovery, risks include Japan’s continuing shift to offshore manufacturing, he said in the note.

Deficit Run

The balance on a seasonally-adjusted basis was in deficit for a third-straight month, the longest run of shortfalls on record. Japan’s income from overseas investment tends to be lower in November than in other months.

“The deficit should start to gradually shrink on the back of a global recovery,” Kazuhiko Ogata, chief Japan economist in Tokyo at Credit Agricole, said before the release.

Japan’s gross domestic product expanded an annualized 1.1 percent in the third quarter, less than initially estimated by the government. As the Bank of Japan tries to drive up prices with unprecedented monetary easing, Abe’s goal is a “virtuous cycle,” where growth propels corporate profits, employers raise compensation and workers spend more.

--With assistance from Masaaki Iwamoto in Tokyo. Editors: Paul Panckhurst, Arran Scott

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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