Japan Swings to Record Current Account Deficit
TOKYO Japan’s current account balance swung to its largest deficit on record in January, with the income surplus tumbling about a third from a year earlier, adding to pressure on an already falling yen.
The first deficit in 13 years came as the global financial crisis dried up demand for Japanese exports, which combined with a strong yen at the time to shrink profits from overseas investments, including subsidiaries of major manufacturers.
Gloom over the global economy hurt Tokyo stock market, with the Nikkei average hitting a 26-year closing low.
“Supply-demand dynamics have changed, and the current account balance indicates further yen weakness,” said Kimihiko Tomita, head of foreign exchange at State Street Bank & Trust Co.
“This is big news, because we aren’t used to trading the yen in an environment of current account deficits.”
The yen has slipped 11 per cent since a 13-year peak against the dollar in January as Japan’s economy grapples with diving exports and its worst recession of the postwar era. The current account news helped the dollar rise half a yen to 98.39 yen. In a sign of deepening pain from the global credit crisis, corporate bankruptcies rose in February, with the type of firms going under broadening to the financial, wholesale and service sectors, a survey showed.Worries about the fate of General Motors and waning hopes for further stimulus from China pushed the Nikkei average down 1.2 per cent on Monday to a 26-year closing low.
The contraction in Japan’s main export markets is pushing corporate giants such as Toyota Motor and Sony into the red, prompting job and production cuts and setting the economy on course for its longest slump in modern times.
“We expect a further deterioration in the current account balance,” said Akira Maekawa, a senior economist at UBS.
“We’ve seen the declines in exports, and now we see the income balance declining because the global financial crisis is cutting earnings on overseas investments. This is a bad development for an export-oriented economy.”
The first deficit in 13 years came as the global financial crisis dried up demand for Japanese exports, which combined with a strong yen at the time to shrink profits from overseas investments, including subsidiaries of major manufacturers.
Gloom over the global economy hurt Tokyo stock market, with the Nikkei average hitting a 26-year closing low.
“Supply-demand dynamics have changed, and the current account balance indicates further yen weakness,” said Kimihiko Tomita, head of foreign exchange at State Street Bank & Trust Co.
“This is big news, because we aren’t used to trading the yen in an environment of current account deficits.”
The yen has slipped 11 per cent since a 13-year peak against the dollar in January as Japan’s economy grapples with diving exports and its worst recession of the postwar era. The current account news helped the dollar rise half a yen to 98.39 yen. In a sign of deepening pain from the global credit crisis, corporate bankruptcies rose in February, with the type of firms going under broadening to the financial, wholesale and service sectors, a survey showed.Worries about the fate of General Motors and waning hopes for further stimulus from China pushed the Nikkei average down 1.2 per cent on Monday to a 26-year closing low.
The contraction in Japan’s main export markets is pushing corporate giants such as Toyota Motor and Sony into the red, prompting job and production cuts and setting the economy on course for its longest slump in modern times.
“We expect a further deterioration in the current account balance,” said Akira Maekawa, a senior economist at UBS.
“We’ve seen the declines in exports, and now we see the income balance declining because the global financial crisis is cutting earnings on overseas investments. This is a bad development for an export-oriented economy.”
quoted from: OMAN TRIBUNE
