Japan's current account surplus jumps again


Japan's export drive helped lift the June current account by 90 percent from a year earlier

Staff and wires

TOKYO, Japan -- Japan's current account surplus widened for the ninth month in June, jumping 90 percent from a year earlier to more than $12.5 billion.

The balance of payments figures, released Monday by the Ministry of Finance, are a further pointer to the role of exports in any recovery for the world's second largest economy.

Last year Japan was in the grip of its third recession in a decade. After three straight quarters of contraction, the economy showed strong growth in the March quarter, but there is a growing view that this may have been a one-off spike.

Many economists expect that the June quarter GDP figures, due for release in early September, may show another fall.

Last week the International Monetary Fund warned Japan to tackle banking and corporate reform or face a short-lived recovery.(Full Story)

The IMF says that even with strong growth in the first quarter of 2002, it expects Japan's real gross domestic product (GDP) to shrink half a percent for the full year.

Monday's rise in the balance of payments figures came on the back of brisk exports and the effect of the World Cup soccer finals on overseas travel.

The impact on markets and currencies has been mixed. The yen is slightly stronger in Asia Monday, trading at 119.8 to the U.S. dollar.

The stockmarket is down in Tokyo, with the Nikkei 225 average off about 1.3 percent at the mid-morning mark.

Trade surplus up 59 percent


Machinery orders in the June quarter were also up over the previous quarter

According to the finance ministry, Japan's surplus rose 90.3 percent in June from a year earlier, to 1.5072 trillion yen ($12.55 billion).

The trade surplus was 1.448 trillion yen ($12 billion), up 59.0 percent from a year earlier.

The current account is the broadest measure of trade in goods and services.

Exports have been the brightest spot in Japan's tentative recovery, but the surplus also came as a reminder of how much is at stake as global economic growth slows, Reuters news agency reported.

For the first six months of the year, the current account surplus totalled 7.92 trillion yen, up 51.9 percent from the same period last year.

"This is mildly yen positive, but it's a mixed thing because of the weak imports that indicate (Japanese) domestic demand is flat," Ron Leven, foreign exchange strategist at Lehman Brothers, told Reuters.

Six-month lag

There is concern among some analysts that a weakening U.S. economy and a strong yen will derail Japan's fragile recovery.

"Since there is about a six-month lag before currencies affect current account, we can expect the trend of a growing current account to continue," said Shinichi Sato, economist at Tokyo-Mitsubishi Securities.

"But exports are beginning to flag, and I expect that and the yen's recent rise to begin to affect the current account toward the end of the year."

Anticipation of an eventual export slowdown has been so widespread that a string of robust economic data has been largely discounted.

On Friday, machinery orders figures, a key early indicator for capital spending, showed the first quarterly rise in a year in the April-June quarter, but the corporations surveyed for the report were forecasting a decline in the July-September quarter.

Sluggish demand

The April-June core machinery orders were up 7.1 percent from the previous quarter, but the forecast for July-September was down 3.9 percent.

Sluggish domestic demand, notably personal consumption and capital spending, have long been a drag on Japan's economy. If exports were to stall before the domestic sector picks up, Japan could relapse back into recession.

One constant contributor to the current account surplus in recent months has been a hefty surplus in the income account, which comprises return on direct investment and portfolio investment abroad because it reflects the bleak investment environment at home.

The income account surplus was 504.6 billion yen in June compared with 407.8 billion a year ago.

Another contributor to the current account surplus in June was the smaller services account deficit due in part to the fallout from the World Cup soccer finals co-hosted by Japan and South Korea.

With fewer Japanese travelling abroad during the competition and more foreign travellers spending money in Japan, the services account showed a smaller deficit of 386.8 billion yen versus 434.3 billion yen a year ago.

Reuters contributed to this report.