Japan's Current Account Rise to 25.2% in February YoY
A container ship sits berthed at a shipping terminal in Yokohama, Japan. Photo by Japantimes.co.jp

JAKARTA (TheInsiderStories) – Japan’s current account slid 0.03 percent year on year (YoY) to JPY1.2 trillion (US$11.30 billion) on a non-seasonally adjusted basis in June while the seasonally-adjusted surplus increased by 48.7 percent month on month to JPY1.9 trillion, government data showed Thursday (08/8).

The trade surplus and primary income declined compared to a year ago, although this was mitigated by the improvement in the services balance, hit by sluggish exports to the Asian region amid ongoing trade tensions between the United States (US) and China, according to a preliminary report released by the Finance Ministry.

The trade surplus dropped 7.8 percent (YoY), reflecting a continued decline in exports, down 7.5 percent (YoY). That said, the trade balance turned to a surplus of JPY759 billion from a deficit of JPY651 billion in May on a non-seasonally adjusted basis, thanks largely to a 7.5 percent (YoY) drop in imports.

The 30.1 percent (Y0Y) decline in primary income reflected larger payments of income from portfolio investments to non-residents in tandem with a decline in net portfolio investment liabilities. On the other hand, the services balance improved in tandem with declines in payments for research and development, while lower energy prices and a stronger yen helped suppress payments for transport and travel for non-residents.

The surplus in the current account, one of the widest gauges of international trade, stood at JPY10.47 trillion, down 4.2 percent from a year earlier. Among key components, the surplus in goods trade plummeted 87.4 percent to JPY224.2 billion as exports of semiconductor manufacturing equipment to South Korea and those of steel and auto parts to China were sharply down in the January-June period.

As Japan decided in July to review its preferential trade treatment of South Korea, the impact was not reflected in the reporting period, a ministry official said.

Meanwhile, primary income, which reflects returns on overseas investments, helped the world’s third-largest economy remain in the black, running a surplus of JPY10.59 trillion, up slightly at 0.2 percent to mark the second-highest result on record.

Services trade, which includes cargo shipping and passenger transportation, registered a surplus for the first time on a half-year basis, coming to JPY231.6 billion, boosted by an increase in the number of visitors from abroad and a decline in research and development costs at foreign bases of Japanese companies. This marked the first black ink on a first-half basis since comparable data became available in 1996.

Goods trade saw a surplus of JPY759.3 billion, down 7.8 percent from the year before. Services trade ran a surplus of JPY50.9 billion, and primary income saw a surplus of JPY427.3 billion.

Harumi Taguchi, principal economist at IHS Markit sees the better-than-expected services balance for June implies that the real GDP growth for the second quarter, which will be announced on 9 August, will be slightly better than our outlook of 0.3 percent quarter to quarter annualized growth. That said, the reescalation of the US-China trade tensions could continue to weigh on Japan’s trade balance over the near term.

The yen’s appreciation was resulted from global uncertainties and narrower interest rate differentials due to policy rate cuts by major central banks. The stronger yen could weigh on income from foreign currency assets and encourage rebalance of foreign investors’ portfolio, which will increase payments of income from portfolio investment.

Nevertheless, Japan’s current account surplus is likely to continue over the medium term, as global trade tensions and demographic problems, as well as the Bank of Japan’ negative interest rate policy, are likely to continue to increase investors’ overseas operations and investment, which will continue to support primary income.

US$1=JPY106.16

Written by Lexy Nantu, Email: lexy@theinisderstories.com

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