Japan Swings to Record Current Account Deficit

Japan's current account balance swung to its largest deficit on record in January, with the income surplus tumbling about a third from a year earlier, as the global recession crushes export demand and income from overseas investments.

The contraction in Japan's main export markets is pushing industrial giants such as Toyota Motor and Sony deep into the red, prompting job and production cuts and setting the economy on course for its longest recession in modern times.

"We expect a further deterioration in the current account balance," said Akira Maekawa, senior economist at UBS. "We have seen the declines in exports, and now we see the income balance
declining because the global financial crisis is cutting earnings on overseas investments. This is a bad development for an export-oriented economy."

Japan's current account balance fell to a deficit of 172.8 billion yen ($1.8 billion) in January, government data showed. 

It was the first deficit in a decade and much deeper than the 15.3 billion yen median forecast from analysts polled by Reuters.

Other data issued on Monday showed bank lending rose in February from a year earlier while commercial paper issuance fell, although less than in January, reflecting a slight easing in gummed up financial markets that have forced companies to borrow from banks.

While there may be some signs of easing tension in the country's credit markets, declining export and income revenues will weigh on the economy for months to come.

Japan's income surplus shrank 31.5 percent in January from a year earlier due to lower interest rates and dividend payments from overseas, a Ministry of Finance official told reporters.

A stronger yen also reduced the value of income from overseas investment, he said.

With Japanese share prices hovering just above 26-year lows and the country's key export industries suffering from an unprecedented downturn due to the global slump, the government and the central bank are under pressure to boost domestic consumption and spur corporate lending.

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The balance of outstanding loans held by Japanese banks rose 3.5 percent in February from a year earlier, after a 3.6 percent increase the previous month.

Outstanding Japanese commercial paper held by banks fell 6.1 percent in February from a year earlier after a 10.1 percent drop in January.

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