Tuesday, January 14, 2014

Japan's Deficit Woes Continue

Japan's current account statistics due Tuesday is expected to post a deficit for the third consecutive month, at about 300 billion yen. This will be in line with the fact that its trade deficit has widened to a new record of 1.35 trillion yen in November.

Import growth was running above 20% on-year in the last few months, reflecting the strength in domestic demand. The rise in telecommunication imports was especially strong, as a result of the release of new smartphone products last autumn and the promotion campaigns by domestic telecom suppliers. Export growth remained relatively weak on the other hand, amid a slow recovery in external demand.

Going forward, we expect the current account to fluctuate between a deficit and surplus through the March quarter. A weak current account balance, the prospect of growth slowdown in Japan (due to the upcoming sales tax hike) and the divergence in the Japan-US monetary policy would continue to exert downward pressures on the yen to dollar rate in the near term.