Japan registered a trade deficit of 2.49 trillion yen (or $32 billion) in 2011, according to its Ministry of Finance. This was Japan’s first trade deficit since 1980. In fact, Japan continued to report annual trade surpluses even during the Asian financial crisis of the late 1990s as well as the global recession triggered by Lehman Brothers in 2008.
The current dip in its trade balance raises eyebrows, given Japan’s export juggernaut of Toyota (TM), Sony (SNE) and others, as well as its status as a major global creditor. However, analysts do not expect Japan to report a deficit in its broader current account, which includes returns on the nation’s huge portfolio of overseas investments.
The current trade balance, which is in the red, was caused by imports that spiked 12% year over year even as exports dropped 2.7% last year. The trade deficit partly points to Japan’s lower competitive advantage and its aging population.
At the same time, the country is experiencing increased reliance on fuel imports, as its nuclear power plants are mostly shut following the March disaster. Just four of the nation’s 54 nuclear power generators are functional today. The surge in the country’s import bill was partly on account of higher payment for crude, fuel oil and liquefied natural gas.
The export performance has been less than stellar as Japanese manufacturers shift production overseas as a measure against rising cost and a strong yen. Also, with regard to export performance, demand remains soft in Japan’s key markets in Western Europe and the U.S.
The Governor of the Bank of Japan stated that the trade deficit will not become an annual feature, and blamed temporary factors such as higher post-earthquake demand. Turning to its domestic finances, Japan has a huge public debt. There is pressure on Prime Minister Yoshihiko Noda to gradually double Japan’s 5% sales tax to finance the burgeoning social security costs of an aging society.
Despite weak macro-economic conditions in Japan, many American companies do robust business there such as Exxon Mobil Corporation (XOM), Citigroup, Inc. (C) and Pepsico, Inc. (PEP).
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