JAKARTA (TheInsiderStories) – Japan’s current account surplus declined by 23.4 percent on year-on-year (y/y) basis to JPY1.4 trillion (US$12.6 billion) on a non-seasonally adjusted basis in August. The surplus fell by 3.8 percent from the previous month to JPY1.5 trillion on a seasonally adjusted basis for the fourth consecutive month of decline.
Higher oil prices and weak external demand could continue to weigh on Japan’s current account surplus, although continued overseas investment and the weaker yen are likely to underpin a net inflow of primary income.
The continued y/y decline reflected a weaker trade balance, recording a deficit of JPY219 billion versus a surplus of JPY335 million in the previous year. The decline is due largely to a 17.5 percent y/y rise for imports, boosted by higher energy prices even as export growth rose to 7.6 percent y/y, largely to increases for semiconductor machinery and transport equipment.
Primary income, the major source of the current-account surplus, rose by JPY41.2 billion to JPY2.2 trillion on a seasonally adjusted basis, resulted from increased income from direct investment. The improvement was largely offset by a decline (of JPY23.7 billion) for services which turned to a deficit of JPY 6.1 billion.
Commenting on the results, Harumi Taguchi, Principal Economist of IHS Markit rated, though Japan’s current account is likely to remain in surplus, weak external demand and higher oil prices could continue to suppress the current account surplus over the near term.
The repercussions of US-China trade tensions and the likelihood of a narrower trade surplus with the US following the US-Japan trade agreement are major concerns while geopolitical risks have lifted oil prices.
The Bank of Japan’s extraordinary monetary easing will continue to support the uptrend of residential investment to abroad, which will in turn lift primary income. That said, this is likely to be partially offset by an increase in primary income payments over the near term, as larger dividends, thanks to higher corporate profits, have encouraged foreign investors to increase portfolio investment.
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