By Harumi Taguchi, Principal Economist, IHS Global Insight
Key Points:
- Japan’s current account surplus for December rose by 18.3% year-on-year (y/y to JPY1.1 trillion (USD9.9 billion) on a non-seasonally adjusted basis, rising for the 30th consecutive month, but fell by 7.2% from the previous month to JPY1.7 trillion for a second consecutive month of declines.
- The y/y increase reflected growth in trade surplus to JPY807 billion, offsetting a widening in the service balance deficit and a softening in primary income.
- The increase in the trade surplus largely reflected a 4.4% month-on-month (m/m) rise in exports, making up the first increase since August 2015 (6.6% y/y), while imports rose by 6.6% m/m but declined 3.3% y/y.
- The service balance deficit widened to JPY287 billion on a non-seasonally adjusted basis, also widened to JPY206 billion on a seasonally adjusted basis, due largely to a decline for receipts from the use of industrial property and increased purchases of computers.
- Primary income remained the major source of the current-account surplus, but softened on a non-seasonally adjusted basis largely because of weaker income from direct investments and dividends, while the seasonally-adjusted service balance improved slightly.
Outlook:
Japan’s current account surplus reached JPY20.6 trillion for 2016 and is likely to continue over the near term, but the continuity of improvement in external demand will be a key factor for further growth. The recent improvement in external demand and the weak yen will contribute to export growth, but this upside could be offset by higher prices for oil and other commodities. The weak yen will also help lift service income, as it could boost growth in the number of visitors from abroad, and also increase primary income from foreign currency assets, along with driving greater residential investment abroad. That said, uncertainties over the global economy and geopolitical risks could weigh on external demand and lead to the yen strengthening.