Japan posts first trade deficit in 22 months

AP News
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Posted: Feb 22, 2011 11:50 PM
Japan posts first trade deficit in 22 months

Japan's exports grew at their weakest pace in more than a year in January, resulting in the country's first trade deficit in 22 months.

Exports expanded by 1.4 percent to 4.971 trillion yen ($60 billion), compared with a nearly 13 percent jump in December, the finance ministry said Wednesday. Meanwhile, rising food and commodity prices pushed imports up 12.4 percent to 5.442 trillion yen ($65.7 billion), producing a deficit for the month of 471 billion yen ($5.7 billion).

Japan last posted a trade deficit in March 2009.

The world's No. 3 economy has relied on robust demand in China and the rest of Asia to fuel its recovery. But shipments to the region, which account for more than half of Japan's exports, were underwhelming in January.

Exports to China rose just 1 percent, and those to Asia overall edged up 0.4 percent. Demand from the region tends to soften in January ahead of the Lunar New Year holidays in early February.

Shipments to the U.S. grew 6 percent as general machinery orders climbed, while exports to the European Union fell 0.7 percent.

By sector, motor vehicle exports rose 3.1 percent. Shipments of electrical machinery, a category that includes TVs and music players, fell 7.6 percent.

January's numbers are unlikely to cause too much concern. The government expects overseas demand to strengthen in the months ahead as the global economy improves.

Earlier this week, the Cabinet Office upgraded its assessment of Japan's economy, saying it is "showing movements toward a pickup and emerging from a recent pause in activity." It described exports as showing signs of acceleration.

Analysts generally agree that 2011 is likely to be a solid year for Japanese exports.

"Although the yen is still strong, the yen/dollar rate is steady, and we think exports should sustain improvement with support from a solid U.S. economic performance," said Goldman Sachs economist Yuriko Tanaka in a note to clients.

With persistently lackluster demand at home, exports play a vital role in Japan's economy. However, even if the country grows in line with the most optimistic of forecasts, it may not be enough to tackle its ballooning public debt.

Moody's Investors Service on Tuesday cut the outlook on Japan's credit rating, saying that economic growth won't be strong enough to avoid reforms. The ratings agency said it doubted whether Prime Minister Naoto Kan could successfully navigate current political gridlock and enact tax reforms.