Japan’s trade deficit widens to a record in Jan

Japan’s trade deficit widened to a record in January as energy imports jumped, highlighting a risk of trying to revive the country’s export engine through policies that could weaken the currency without also pursuing broader economic reforms.

A central bank board member said the yen’s fall was helping exports — they posted their first annual rise in January in eight months — and said the Bank of Japan would push on with its policy, but analysts expect trade deficits to persist for some time yet.
Prime Minister Shinzo Abe has staked his political career on lifting Japan out decades of malaise through aggressive fiscal and monetary policy, but the data indicated a rise in exports on its own was not enough to turn things around.
“Trade deficits could continue for much of this year, if not into next year,” said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting.
“This shows that on a net basis money is leaving the country. We need to turn this around by increasing our earnings power from exports. A weak yen will help, but it won’t solve all our problems.”
Since November the yen has tumbled 16% versus the dollar to its lowest in nearly three years as expectations have grown about Abe’s promises of radical policy to spark an economy that has contracted for three successive quarters.  
Economists polled by Reuters have raised their economic growth forecast for the 2013/14 fiscal year to 2.1%, expecting the economy to benefit as exports recover due to the weaker yen and improving global demand. The trade deficit reached a record 1.6 trillion yen ($17.1 billion) in January, larger than a median forecast for a 1.38 trillion yen deficit, finance ministry data showed.
Imports jumped 7.3% in January from a year earlier, well above the median estimate for a 1.6% annual increase and the biggest rise since May last year.
Japan has been importing more fossil fuels to make up for the closure of almost all of its nuclear power plants after the Fukushima nuclear disaster almost two years ago, and the weaker yen is increasing the cost of those shipments.
“A lot of people are pinning their hopes on a weak yen, but exports won’t recover until the spring at the earliest,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. “We cannot reject the argument that a weak yen will eventually benefit Japan, but it will take more time.”