Japan deficit hits record high as yen weakens

PUBLISHED : Monday, 10 February, 2014, 3:15pm
UPDATED : Tuesday, 11 February, 2014, 1:48am

Japan's current-account deficit widened to a record in December on soaring imports, adding to Prime Minister Shinzo Abe's challenges as he tries to drive a recovery in the world's third-biggest economy.

The shortfall of 638.6 billion yen (HK$48.4 billion) surpassed November's gap of 592.8 billion yen, the finance ministry said yesterday. The deficit was smaller than the 685.4 billion yen median forecast in a survey of economists.

The yen's slide and increased demand for foreign energy due to nuclear plant closures are causing imports to outstrip exports, dragging on an economy that is forecast to contract after the government raises a sales tax in April. A surplus in overseas investment income is staving off the risk of a sustained deficit, which could undermine investor confidence in a country with the world's largest debt burden.

"A surge in domestic demand before the sales-tax rise is adding to the deficit, a trend that is expected to continue during March," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Temporary factors are playing a large role in pushing the deficit wider."

For last year, Japan posted a current-account surplus of 3.3 trillion yen, the smallest on record. It registered an income surplus of 16.5 trillion yen for the year, the highest in the comparable data.

Japanese shares rose as the yen weakened following jobs data in the United States and amid bets that the Federal Reserve would press on with stimulus cuts.

Economy Minister Akira Amari said last week the trade deficit stemmed from factors including strong domestic consumption, weak economies in export destinations and companies shifting production abroad.

Japan's sales tax will rise to 8 per cent in April from 5 per cent now as the government aims to boost revenue.