October 8, 2013 / 1:56 AM / 6 years ago

UPDATE 1-Sharp fall in Japan's current account surplus puts focus back on debt pile

* Aug current account surplus slumps 63.7 pct yr/yr
    * Current account decline biggest since Oct 2011
    * Income surplus falls for first time in 9 mths
    * Japan's status as net creditor nation in doubt

    By Stanley White
    TOKYO, Oct 8 (Reuters) - Japan's current account surplus
tumbled in August due to declining overseas profits and chronic
trade deficits, raising questions about the nation's ability to
rely on its status as a net creditor to ease the pain of its
massive public debt pile.
    The 63.7 percent annual decline in the current account
surplus was the biggest in almost two years and confounded the
median estimate for a 23.4 percent annual increase as the income
surplus, which includes earnings from overseas subsidies, fell
for the first time in nine months.
    The income surplus decline could prove temporary as overseas
economies remain stable. Trade deficits will be more persistent,
though, as energy imports soar to make up for closed nuclear
power plants, which will in turn weigh on the current account.
    "We have to worry about Japan's debt dynamics in the long
term," said Shuji Tonouchi, senior fixed income strategist at
Mitsubishi UFJ Morgan Stanley Securities.
    "Japan was a high surplus country, but things are changing.
Other countries have also transitioned from maintaining a high
surplus via exports only to watch their surplus shrink."
    The current account surplus stood at 161.5 billion yen
($1.66 billion), versus the median forecast for a 549.0 billion
yen surplus, finance ministry data showed on Tuesday.
    The income surplus fell 10.0 percent in August from a year
ago to 1.3 trillion yen.
    Japan's public debt has just topped 1,000 trillion yen, or
about $10 trillion. At more than twice Japan's GDP, it is the
heaviest debt burden among industrialised nations.
    Until a few years ago, some economists argued that Japan's
debt burden is not much of a problem because its hefty current
account surplus means it is a net creditor to the world.
    However, the trade balance, which was already under pressure
from a shift in production overseas, fell into deficit after the
March 2011 earthquake and nuclear disaster as energy companies
replaced nuclear energy with imported fossil fuels.
    Since sweeping to power in December with a mandate to
jump-start the world's third-biggest economy, Prime Minister
Shinzo Abe has launched an aggressive policy mix of government
stimulus and monetary easing dubbed 'Abenomics' that has driven
the yen lower and buoyed the stock market.
    Still, while a weakening yen has boosted the competitiveness
of Japanese exporters and increased the value of overseas
revenue in yen terms, it has also pushed up import costs. 
   In an effort to address the mounting debt problem, Abe this
month agreed to raise the 5 percent sales tax to 8 percent in
April to pay for rising welfare costs.
    However, there are worries this will not make a sufficient
dent in the debt burden because the government is also compiling
stimulus spending that will wipe out much of the gain in tax
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