Japan logs August's most significant current budget surplus as import prices stream

October 12, 2022: -On Tuesday, Japan’s budget surplus shrank to its most diminutive amount on record for August, Ministry of Finance data showed, with surging prices of energy substances outstripping price rises in exports and draining national wealth.

The surplus stood at 58.9 billion yen, smaller than economists’ median forecast of 121.8 billion yen in a Reuters poll. The account was in a deficit for two months, at 530.5 billion yen on a seasonally adjusted basis.

The continual trade surplus in the past and growing overseas investment means Japan has never recorded a current account deficit on an annual basis. But a worsening trade balance has shrunk the surplus for four consecutive years.

“What’s happening is a shift of income from commodity-importing nations such as Japan toward commodity exporters,” said Masamichi Adachi, chief economist at UBS Securities. “I think the current account surplus will contract as trade deficits persist, eroding Japan’s purchasing power and which makes it poorer.”

The current budget surplus has long been regarded as a sign of export might and a basis of confidence in the safe-harbor yen. Yet, recent years have seen the account occasionally swing to the deficit every month.

While the cost of imports rises as the yen weakens, the attendant boost to exports that evolve cheaper to foreign buyers has not been as high due to firms shifting production abroad, a consequence of a previously strong yen, which makes exports pricey.

Japan offsets trade deficits with returns from a growing number of overseas investments; its primary income ratio clocked a record 3.327 trillion yen in August, helped by a weak yen. But a worsening balance of payments stresses structural economic change and runs against Japan’s trade powerhouse image.

Policymakers are evolving increasingly concerned about a weak yen driving up import statements and households’ worth of living because of the heavy reliance on energy and sustenance imports.