Japan’s first annual trade deficit in 29 years

Japan’s first annual trade deficit in 29 years
By Michiyo Nakamoto in Tokyo
Copyright The Financial Times Limited 2009
Published: April 22 2009 03:34 | Last updated: April 22 2009 16:43
http://www.ft.com/cms/s/0/2b60d942-2ee5-11de-b7d3-00144feabdc0.html


Japan suffered its first annual trade deficit in nearly three decades in the year to March, highlighting the continuing impact of the global financial crisis on the world’s second-largest economy.

However, the relentless slide in Japanese exports eased moderately last month, providing a glimmer of hope that the severe impact of the global recession may be beginning to abate.

Economists said it was too soon to call the bottom in the economic collapse that caused gross domestic product to contract by 12.1 per cent in the last three months of last year, the largest quarterly drop since 1974.

But some said the global financial shock appeared to be easing. “The stage is set for a strong rebound in industrial production and exports [in the current quarter],” said Richard Jerram, chief economist at Macquarie Securities in Tokyo.

Mr Jerram said Japanese companies could move “from the vicious cycle of the past several months to some form of virtuous cycle” as they stepped up production to meet demand after cutting back and slashing inventories faster than the fall in demand.

He warned that the resulting improvement in production would still leave Japanese industry “a long way below where [it was] before the world collapsed in September”.

Japan reported a trade deficit of Y725.3bn ($7.4bn, €5.7bn, £5bn) in the year to the end of March, the government said, marking its first full-year negative trade balance since 1980.

The deficit reflects the sharp rise in commodity prices earlier in the year and the severe contraction in exports, which has lasted for six consecutive months. Exports remained weak in March, falling by 45.6 per cent against March 2008, according to the finance ministry.

However, that was an improvement over a record 49.4 per cent drop in February, and was better than most forecasts.

Imports fell less than exports, resulting in a trade surplus of Y11bn for the month, which was 99 per cent down from a year earlier. More reassuringly, exports in March rose 2.2 per cent from February – the first rise in 10 months, ending a four-month run of record declines.

The slight improvement in trade comes as Taro Aso, prime minister, aims to pass a supplementary budget to pay for a record Y15,400bn stimulus package announced this month.

The government will issue Y10,800bn of bonds this fiscal year to finance the additional spending, much of which will go towards boosting domestic demand and creating jobs.

Positive signs among the export numbers included a pick-up in exports to the US and China, Japan’s two most important markets.

Exports to the US dropped by 51.4 per cent compared with a 58.4 per cent fall in February, while exports to China fell by 31.5 per cent, against 39.7 per cent.

Nomura said in a report it expected a halt to the sharp drop in exports followed by a temporary pick-up as the impact from the global financial crisis eased.