May 10, 2012 / 12:30 AM / 8 years ago

UPDATE 2-Japan's current account surplus recovers on exports

* March current account surplus -8.6 pct yr/yr

* Exports recovering but energy imports also rising

* Going nuclear free could pressure Japan’s current account

By Stanley White

TOKYO, May 10 (Reuters) - Japan’s current account surplus fell in March from a year earlier but marked an improvement from the previous month as exports slowly recover due to rising demand from the United States and earnings on overseas investments increase.

The 8.6 percent annual decrease in the current account surplus was less than the median estimate for an 18.3 percent annual decline and was slower than a 30.7 percent decline in the year to February.

The current account, a broad measure of trade and other investment flows, is likely to remain in surplus due to earnings on Japan’s hefty holdings of overseas assets, helping the country finance its huge debt pile solely with domestic funds.

But the surplus could come under pressure as Japan imports more fossil fuels after the closure of all its nuclear power plants.

“U.S.-bound exports are showing strength and exports to China are likely to recover later this year, so this should help Japan log current account surpluses in the near term,” said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance.

“But the trade balance could be in a deficit due to robust fuel imports for operating thermal power plants as an alternative to nuclear power. Over the longer term, the current account surplus is in a declining trend.”

The current account surplus stood at 1.5894 trillion yen ($19.98 billion), a gainst a median forecast for a 1.4209 t r illion yen surplus in a Reuters poll, Ministry of Finance data showed on Thursday..

Exports rose 7.3 percent in March from a year earlier, the first gain in six months. Imports rose an annual 11.9 percent, slightly faster than an 11.1 percent increase in the year to February.

The surplus in the income balance rose 10.1 percent in the year to March to 1.8004 trillion yen. This was the biggest gain in five months as investors repatriated earnings and dividends on investments abroad, the data showed.

The current account balance deteriorated sharply last year as exports slumped and fuel import costs surged after the devastating March 2011 earthquake, which led to shutdowns in nuclear power plants.

A bigger-than-expected increase in exports in March, according to customs-cleared trade data released last month, has raised hopes that overseas demand is stabilising, which could support Japan’s export-dependent economy.

Japan’s lack of a clear energy policy poses a risk to the current account as it boosts imports of fossil fuels and a worsening balance could raise the spectre of Japan turning to overseas funds to finance its huge debt pile.

Japan shut the last of its 50 nuclear reactors for maintenance on Saturday.

The government has so far failed to convince the public that it is safe to restart some of the reactors, so the country must rely on more-expensive thermal power and could face power shortages in the peak summer period.

Japan’s economy is expected to grow around 2 percent in the current fiscal year to March 2013 as rebuilding from the March 2011 earthquake and tsunami gets into full swing.

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