Japan Trade Surplus Drops to 4-Year Low

Japan cut its massive trade surplus with the rest of the world by 28.4% last year, the government reported today, but economists say the surplus will climb again in the year ahead.

Record spending by Japanese abroad, higher oil imports and a strong dollar helped cut the trade surplus in 1989 to its lowest level in four years.

Japan’s current account, the broadest measure of trade in goods and services, narrowed to $56.98 billion in 1989 from $79.63 billion in 1988.

Japan’s invisible trade deficit, which includes the money Japanese spend as tourists overseas, ballooned to $15.93 billion in 1989 from $11.26 billion in 1988.

With 9.6 million Japanese traveling abroad last year, Japan’s travel deficit amounted to a record $19.33 billion in 1989 and accounted for a large part of the reduction in the current-account surplus, analysts said.

“Tourism was very, very important. Travel abroad has increased by 20% in each of the last three years,” said Matthew Berlow, an economist at Credit Lyonnais Alexanders Laing and Cruickshank Securities.

A stronger dollar in 1989 was a major cause of the sharp decline in the trade surplus, said Hidehiro Iwaki, an economist at the Nomura Research Institute.

A high U.S. currency depresses the value of Japanese exports denominated in dollars and accounted for roughly 30% of the $18 billion reduction in the 1989 trade surplus.

Exports totaled $269.63 billion in 1989 against $259.77 billion the previous year.

Slower U.S. economic growth and capacity limitations among some Japanese manufacturers, mainly auto makers, triggered by robust Japanese domestic demand, also curtailed exports.

“Some goods for export might have been shifted to the domestic market,” said Chiharu Sumita, an economist at UBS Phillips and Drew International.

“Capacity constraints put a drag on Japanese exports although they’ve started to expand production capacity lately,” Iwaki said.

Japan imported more oil at higher prices in 1989 and that gave imports a boost, economists added. Imports last year totaled $192.50 billion against $164.75 billion in 1988.

Analysts cautioned, however, that progress in narrowing the trade surplus further could stall out this year.

“We think the surplus for the full year will be somewhat larger in 1990 than it was in 1989,” Berlow said. He foresees a current-account surplus of $63.9 billion this year.