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Japan No Longer an Export Powerhouse
2:23 am
Jan 14, 2014
ABENOMICS
2:23 am
Jan 14, 2014
ABENOMICS
ELEANOR WARNOCK
Higher energy imports played a role in Japan’s record current-account deficit in November. But the data is a sign of a more fundamental change: Japan’s three decades as one of the world’s biggest exporters may be over.
From the 1980s until 2010 Japan exported more than it imported, supplying the world with electronics, machinery and other goods.
- That changed in 2011, after the Fukushima nuclear disaster. Japan’s nuclear power plants shut down, pushing up imports of other fuel and tipping the trade balance into deficit.
Those reactors remain closed and Japan’s huge fuel imports, compounded by the weak yen, are widening the trade deficit.
But even stripping out fuel, Japan would be running a meager trade surplus at best. A major factor is that Japanese companies have moved production offshore, to cheaper centers in China and elsewhere.
Those goods show up in the export statistics from, say, China, not Japan. Japan’s ambitious monetary easing, meant to weaken the yen and lure companies back onshore, so far has failed to entice firms back.
“Only a small number of companies brought back factories to Japan as the yen weakened,” said Junko Nishioka, an economist with RBS Securities in Tokyo.
Japanese exporters also are having a hard time competing with other nations, especially in the smart phone market. Japanese consumers are now increasingly buying imported goods such as electronics that were once the mainstay of the nation’s exports.
“There’s a loss of competitiveness of Japanese manufacturing,” said Izumi Devalier, an economist at HSBC in Hong Kong.
That’s showing up in weak export numbers. Exports in yen terms are expected to rise 9.8% in the current fiscal year, but that gain is largely due to a weaker currency making earnings look larger in yen terms, according to the Japan Foreign Trade Council. Imports, meanwhile, will rise 14.1%, driven by higher fuel needs, the council estimates.
The value of liquefied natural gas imports will likely rise 13.9% in the current fiscal year through end March, but imported devices like smart phones will rise 25.7%, cars 14.6% and clothing 24.8%, according to JFTC forecasts.
The current account, which measures trade and net income flows, should turn back to positive territory in the second quarter this year, many economists say. But that’s largely due to sizeable earnings from overseas investments, which will help mask a continued trade deficit.
“In the 2000s, Japan earned income from the twin trade and income surpluses, but we’re in a new structure, where a surplus in the income account makes up for a trade deficit,” said Sojitz Research Institute chief economist Tatsuhiko Yoshizaki.
Turning the nuclear reactors back on – which is still the subject of heated political debate – could help narrow the trade deficit by reducing fuel imports. But even here, the effect is likely to be limited.
Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo, said that would help reduce the gap, but it would “not be enough to change the course” of Japan’s trade patterns.
For Japan, these issues have various impacts. The government wants more business to come back onshore, raising wages and consumption and ending years of deflation. If this doesn’t happen, Japan’s economy might sink back into the doldrums.
In economic terms, a large current account deficit means a gap between savings and investment. That could mean Japan has to rely more on foreign investors to fund the gap in the future, a risky strategy for a country with one of the world’s largest stocks of public debt.
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