UPDATE 2-Record low current account surplus shows Japan's challenges

Thu Feb 7, 2013 11:43pm EST

* 2012 current account surplus 4.7 trln yen, record low
    * Energy imports, weaker yen weighing on balance of payments
    * Current account surplus likely to continue to shrink
    * Japan Inc also losing out to competitive overseas rivals


    By Stanley White
    TOKYO, Feb 8 (Reuters) - Japan posted its smallest annual
current account surplus on record in 2012 as exports weakened
and energy imports grew, a signal to Prime Minister Shinzo Abe
that economic revival needs more than just a weaker yen and
extra spending.
    The current account surplus is likely to continue shrinking
as energy imports rise due to the closure of nuclear power
plants and as Japanese exporters lose out to more competitive
Asian rivals, economists say.
    Japan's current account surplus was 4.7 trillion yen ($50.4
billion) in 2012, Ministry of Finance data showed, a figure that
seems impressive. But it was less than half the surplus recorded
a year earlier and the smallest since 1985, when Japan started
compiling comparable data.
    The deterioration was most marked at the end of the year,
with Japan posting consecutive monthly deficits for the first
time as the December shortfall hit 264.1 billion yen, more than
80 percent bigger than the median forecast in a Reuters poll.
    "Energy imports and higher energy costs are structural
factors that will cause the current account surplus to decline
further," said Hiroshi Miyazaki, chief economist at Shinkin
Asset Management Co.
    "Currency moves can only go so far in improving corporate
competitiveness. There are other areas like corporate taxes or
incentives for business investment where Japan is lagging."  
     Abe, who won office in December, wants to "correct" the
trend for excessive yen gains to help the economy. He also wants
to shake off nearly 20 years of deflation through aggressive
central bank action and increased spending.
    Since November, as Abe became the election frontrunner, the
yen has fallen 16 percent in anticipation of his economic agenda
and is now near three-year lows against the dollar.
    However, a shrinking surplus means Japan's status as a
creditor to the world is in jeopardy. This could trouble
policymakers because it would mean a weaker yen is a symptom of
waning fortunes, and not the catalyst for economic revival.
    
  
    Data last month showed Japan posted a record trade deficit
of 6.9 trillion yen in 2012, as exports fell in annual terms
through the second half of the year. 
    The theory is that a weaker yen will reignite the export
engine in coming months, but that assumes there will be demand
-- something Japan's once-dominant electronic makers are
struggling with.
    The weaker yen will not stop Nintendo Co Ltd, the
world's leading gaming company by machines sold, from posting an
operating loss for a second straight year. 
    And while Sony Corp said it is finding some salve
from the weaker currency, it is still cutting sales forecasts
and struggling to find a footing between industry leaders Apple
Inc and Samsung Electronics Co Ltd and
cheaper products from firms in China or Taiwan. 
    Not all firms are in that predicament. Toyota Motor Corp
 reclaimed its position as the world's best-selling
carmaker in 2012, and the falling yen should increase its
foreign competitiveness and boost its profits.
    Japan also faces a structural shift in its trade accounts as
public opinion remains firmly against restarting the 48 nuclear
power plants shut since the Fukushima nuclear disaster in March
2011. Only two plants remain in operation.
    Those stations generated one-third of Japan's power needs,
which is now covered by imports of oil and natural gas -- which
become more expensive as the yen loses value.
    "I am not expecting Japan's current account deficit will
become a trend, but the surplus will probably stay at a lower
level," said Yoshimasa Maruyama, chief economist at Itochu
Economic Research Institute in Tokyo.
    "Japan's energy imports are expected to stay high this year
and next year. The recent yen decline will likely help boost
exports but at the same time it will adversely impact import
costs."
    For now, markets are optimistic that Abe's policies will
give the economy a boost.     
    Analysts expect the economy will grow around 2 percent in
the next fiscal year starting April, aided by the new
government's stimulus spending, aggressive monetary policy
easing and the yen's retreat.