8 Aug 2014

Will the current deficit become structural in Japan?

The trend of Japan's negative current account, as recorded in the first half of 2014 for the first time since 1980s, seems worsening and it will be becoming quite possible to demonstrate annual current deficit in 2014, or a few years later maybe. So my answer to the title question is, within a few years, definitely yes.

Trading Balance in 2013 showed Food (JPY -6 trillion), Raw materials (-4), and Mineral fuels (-25) are the sources of the trade deficit; and the import of Electric machinery increased fur more than the once strong export of that. These trends won't change drastically for coming years unless all the nuclear power plant reboot, which is quite unrealistic if you see the current slow debate on the new regulations.
Trading Balance in 2013 by principal commodity (In JPY Million)

To sum up, the increase of imported goods and services have been dragging down the Japanese economy by more than 1 p.p. in Q1 2014, according to the latest OECD statistics. Some would say that this should not be necessarily the negative sign for Japan, since the Japanese manufacturers have been applying to the model of producing abroad and marketing abroad, instead of the conventional model of producing domestically and marketing abroad. Yet, the current deficit suggests the income surplus from such out-out transactions are not sufficient for making up the trade deficit by importing basic goods and decreasing exports from Japan.

And in case of the structural current deficit, the only way to finance the government piling its debt more than JPY 1K trillion is to ask foreign players to buy the JGB more. Would it really be manageable by them?

Ministry of Finance, Japan
Japan logs largest six-month current account deficit ever | The Japan Times:

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