By Harumi Taguchi, Principal Economist, IHS Markit
In December 2017, Japan’s current-account surplus narrowed by 28.5% year on year (y/y) to JPY797 billion (USD7.3 billion) on a non-seasonally adjusted basis, and also by 13.0% month on month (m/m) to JPY1.5 trillion (following a 30.4% m/m drop in the previous month) on a seasonally adjusted basis.
The current account surplus for full-year 2017 rose 7.5% y/y to JPY21.9 trillion. The y/y weakness for December largely reflected the third consecutive decline in the trade surplus (down 33.4%) and a 10.1% decline in the primary income balance.
While the waning positive impact from the weak yen has slowed growth in both exports and imports, imports continued to grow, moving up 14.6% y/y to outpace exports (up 8.8%), largely because of higher prices of oil and other resources as well as solid growth in mobile phone imports.
The service balance deficit narrowed thanks to an increase in the travel balance, supported by continued growth in the number of visitors from abroad.
However, the drop in deficit was limited as the upside was largely offset by a decline in the primary balance surplus, due largely to increased payouts of dividends and withdrawals from the income of quasi-corporations as well as investment income on equity and investment fund shares by non-residents, reflecting solid corporate profits.
IHS Markit Views:
Although the recent rise in oil and other resource prices as well as strengthened domestic demand could keep imports ahead of exports and, in turn, weigh on Japan’s trade surplus, the current-account surplus is unlikely to drop sharply over the near term, given that external demand is likely to continue, thanks to strengthening in the global economy.
IHS Markit expects Japan’s current-account surplus to remain at over 3% of GDP over the near term.
Although portfolio investment for 2017 turned to a net inflow of JPY6.1 trillion (following two consecutive years of solid net outflows) due largely to increased inward portfolio investment by non-residents, the Ministry of Finance reported that residential investors increased portfolio investment in January.
Foreign direct investment (FDI) abroad continued to contribute to an increased outflow of JPY16.4 trillion in 2017, so the overall uptrend of investment abroad will continue to underpin the primary income.