Weak Yen Puts Japan Current Account Back in Black

Akio Kon | Bloomberg | Getty Images

Japan's current account balance swung to a surplus for the first time in four months in February as a weaker yen boosted overseas investment income to offset a persistent trade deficit caused by higher fuel imports and still sluggish exports.

Ministry of Finance data showed a surplus of 637.4 billion yen ($6.56 billion) in February, more than the 466.3 billion yen expected by economists in a Reuters poll. It followed three consecutive deficits, the longest such sequence on record.

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The surplus was still down 47 percent from a year earlier, with the trade balance remained in deficit as the yen's decline has pushed up costs of imported fuels immediately while its impact on exports will take some time to be fully seen.

"Yen's weakness is expected to support exports around summer but it is hard to forecast at the moment when it would significantly boost exports," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.

"The pace of export recovery is slow and it has not been clearly felt in the economy because of sluggish recovery in China's economy and higher imports on energy."

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The Bank of Japan last week unveiled massive stimulus steps to revive the economy and end deflation. On Monday, the yen slid towards 99 per dollar, its lowest in nearly four years, as markets prepared for the BOJ to start buying about 70 percent of debt issued by the government.

That should ensure that borrowing costs will remain low, but in the longer-run trade deficits and shrinking current account surpluses could threaten Japan's ability to finance a debt pile that is twice the size of its economy, the highest ratio in the developed world.

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Data last month showed Japan posted an eighth straight monthly trade deficits in February.

"The trade deficit will probably continue to be covered by income made from investment overseas but the current balance will likely sway between surplus and deficit," Kodama said.

For decades, Japan had accumulated solid current account surpluses, but the surplus for 2012 more than halved from a year before to 4.7 trillion yen, the smallest on record.