By: Dr. Mike Campbell
As we pointed out yesterday, Japan is not having the best time of it right now. It has recently been officially eclipsed by China as the world’s second largest economy, deflationary pressures persist and consumer outlook remains bearish. Now, for the first time in nearly two years, her balance of payments (the difference between what the nation exports and what it imports) is in the red.
Japan’s trade figures revealed a deficit of $5.7 billion for January, despite the fact that exports had seen a 1.4% growth. The export growth disappointed Japan watchers who had been expecting a figure nearer to 7%. Whilst the relatively strong price of the Yen in Japan’s exporting markets is harming exports by making them less competitive, the decline in the figures was ascribed to regional factors. Whilst Japan’s trading figures improved in January by 0.4% (year-on-year), this was nothing in comparison to the 14.8% surge seen in comparable data for December.
Chinese-Japanese Balancing Act
China is a major trading partner of Japan and is trying to deal with relatively strong inflation within the booming Chinese economy. As part of the strategy to tackle inflation, China has pushed interest rates up and forced banks to hold higher levels of liquidity. The idea is that making the money supply tighter and more expensive will choke off inflation without strangling the recovery. Again, Japan’s exports to China were up in January by 1%, but this is a mere shadow of the 20% year-on-year rise seen during the previous month.
Economists in Japan suggest that the January data is little more than a blip and that the balance of payments will be back in the black next month, but this may prove to be over-optimistic if China continues to move against inflationary pressure in its economy.