By Harumi Taguchi, Principal Economist at IHS Markit
Key Points:
Japan’s current account surplus declined 88.9% in January year on year (y/y) to JPY65.5 billion (USD576 million) on a non-seasonally adjusted basis. On a seasonally adjusted basis, the surplus also fell for the third consecutive month, by 24.1% from the previous month to JPY1.3 trillion.
The dramatic y/y fall in the surplus was due to the trade deficit of JPY853 billion, which widened by JPY421 billion from the previous year. It was the first deficit in 12 months, which largely reflected weaker growth in exports, due to trade partners’ Lunar New Year Holidays and declines in exports to the US, while higher prices of oil and coal boosted imports. Imports rose 10% in January y/y for the first time since December 2014.
Service balance deficit widened to JPY236 billion on a non-seasonally adjusted basis due largely to an increase in payments for technical and trade related services, offsetting an increase in travel receipts.
Primary income, the major source of the current account surplus, softened on a non-seasonally adjusted basis by JPY72 billion to JPY1.4 trillion largely because of weaker income from direct investment and dividends. While primary income narrowed from a year ago for the 11th consecutive month, seasonally adjusted figures showed only a marginal decline from the previous month.
Outlook:
Japan’s current account surplus is expected to rebound in February in the absence of the seasonal effect from trade partners’ LunarNew Year Holidays. The preliminary figures for the first 20 days of February trade balance, which were also released by the Ministry of Finance today, included a surplus of JPY528 billion, thanks to a boost in exports (16.1% y/y).
Nevertheless, further improvement in the current-account surplus is likely to be limited unless external demand strengthens. The improvement in external demand and the weak yen will contribute to export growth over the near term, but this upside could be offset by higher prices for oil and other commodities.