Big Japan Trade Surplus Raises Eyebrows : Commerce: Unexpectedly high 15% gain in June begs question: Why are exports still rising despite strong yen?
Strong exports to the United States and Asia helped boost Japan’s global trade surplus to $11.35 billion in June--an unexpectedly high 15% increase that raises questions as to why the rise in the yen is not slowing Japanese exports.
According to Finance Ministry statistics released Friday, the surplus with the United States rose by an even higher 43%, to $4.73 billion from $3.30 billion a year ago.
Economists said the export growth and the continued climb of the Japanese currency cast doubts about when the politically sensitive surplus will begin to decline. The doubts could spark further yen appreciation and more political pressure from the United States on Japan to do more to open its markets to imports.
“This could rebound on the yen, which would in turn worsen the J-curve effect (of yen appreciation) and spark a vicious circle,” Nikko Research Center economist Tetsuro Sawano said.
Over the long term, a high yen should make Japanese products more expensive overseas, cutting into sales, while imports into Japan become more competitive. Until June, Japan’s surplus measured in yen had been declining for more than a year.
But a stronger yen also tends to initially inflate the dollar value of Japan’s surplus, before pushing it down as a result of increased imports and dwindled exports. This so-called “J-curve” effect occurs as the value of yen-based exports gets inflated in dollar terms when calculated with a lower dollar exchange rate. The change in value eventually causes exports to fall and imports to rise, thereby rounding the curve of the J.
What worries analysts is that the June rise in the surplus was not just the effect of the J-curve, but had even more to do with strong economic growth in the United States and Asia and lingering recession in Japan.
“That’s a big surplus with the United States,” said Tohru Itami, chief currency trader at Yasuda Trust & Banking. “That’s no good for the dollar.”
Friday’s report came as the dollar continues to weaken against the yen.
Analysts had expected that “there was going to be some jump back up in Japan’s surplus, but not that much,” said Ron Bevacqua, an economist at Merrill Lynch Japan. “Only part of this jump can be explained by the J-curve effect. It looks to me that whereas everyone had hoped that last month was the first true sign that the trade surplus was going to come down, in essence it was actually a blip.”
A Foreign Ministry official attributed the June rise to the steadily recovering U.S. economy, which particularly boosted Japan’s exports of microchips and auto parts. Exports of seafaring ships, especially to China, also grew significantly.
Some analysts insist that a trend toward a declining Japanese surplus is under way despite the June turnaround.
“The political focus on the dollar value of Japan’s trade surplus is completely misleading,” said Geoffrey Barker, an analyst at Baring Securities Ltd.
“Dollar stability would quickly translate into a rapid decline in the surplus--a fact which will become clearer as the year progresses,” Barker said.
Tomoko Fujii, an economist at Salomon Brothers Asia Ltd., said her firm is still predicting a downward trend for Japan’s surplus as economic recovery picks up here.
Fujii also said the June trade figures will not necessarily mean an even stronger yen. “The currency markets did not react much to the trade figures, because their main concern is U.S. monetary policy at this time,” she said.
Japan’s Trade Surplus
Total surplus, in billions of dollars:
June, 1994: $11.35
Source: WEFA Group
