Japan’s Surplus With U.S. Soars by a Bloated 20% : Trade: The July figure revives questions about when--or whether--the politically sensitive figure will come down.
Japan’s trade surplus with the United States rose 20% in July to its second-highest level ever, the Finance Ministry said Friday, raising questions anew about when--or whether--the politically sensitive surplus will decline.
The $5.63-billion bilateral surplus--almost half of Japan’s $12.3-billion global surplus for July--was fueled by strong American demand for Japanese automobiles, machinery and semiconductors, Finance Ministry spokesman Fumio Tomori said.
Although the global surplus increased a modest 4% in July, it surprised many analysts because of earlier forecasts of a decline.
Geoffrey Barker, an analyst at Baring Securities Ltd., said the jump in the global surplus was “disappointing” because preliminary figures for the first 20 days of July had indicated that the monthly surplus would fall.
In yen terms, the global figure is showing a declining trend, but this has been more than offset in dollar terms by the strong rise in the Japanese currency. The value of the dollar averaged 99.53 yen in July, compared to 108 yen a year earlier.
While the dollar has recovered from its record low of 96.60 yen set in mid-July, closing Friday in Tokyo at 100.30, Japan’s continuing surpluses could lead to renewed dollar weakness. The dollar closed trading in New York on Friday at 100.15 yen, down from 100.23.
“We are going to be still working on pretty big surpluses through to the end of the year,” DB Capital Markets (Asia) Ltd. analyst Kenneth Courtis said. “Surpluses may have already peaked, but they aren’t going to come down quickly.”
The so-called “J-curve” effect of a strong yen inflating the dollar value of exports will continue to apply as long as the dollar stays at about 100 yen, economists said.
The J-curve effect assumes an eventual fall in the volume of Japan’s exports as they become less price-competitive, but some economists said Japan’s exports could remain strong.
“Japanese products will continue to be bought by U.S. and Asian users even at higher prices, as their quality is still in demand,” Bank of Tokyo economist Yoichi Nakagawa said.
Continued high or rising surpluses could also lead to greater pressure from the U.S. government on Japan to boost imports more rapidly through overall economic stimulus and specific market-opening measures. Washington has threatened to impose sanctions unless agreements are reached by Sept. 30 in bilateral trade talks covering automobiles and auto parts, insurance and government procurement of telecommunications and medical equipment.
Although Japan recorded increased exports in July, there was also strong growth in the import of semiconductors, as well as aircraft and office equipment. Imports of lumber and oil fell.
Robert Feldman, an analyst at Salomon Brothers Asia Ltd., said the reported drop in oil imports casts doubt on the accuracy of the monthly statistics in reflecting real trends.
Overall imports have been running about 15% higher this year than last year, and “all of a sudden in July there was a mere 8% increase,” Feldman said. “It appears that oil imports were down 3%.”
A drop in oil imports is especially unbelievable because of signs that an economic recovery is getting under way, he said. “Perhaps some paperwork just got done late, or something like that. . . . It just doesn’t make any sense. It has to be a reporting blip.”
The view that any slowdown in import growth is only temporary was bolstered by a separate report released Friday by the Economic Planning Agency stating that a recovery in private consumption is gaining strength. Signs of renewed corporate capital spending are also emerging, it said.
The overall assessment, in the agency’s monthly report, was that the economy “is gently emerging from its prior sluggish state.”
The agency stopped short of declaring that the long-awaited recovery is under way.
Reuters contributed to this report.