Japan probably recorded its first annual trade deficit since 1963

January 5, 2012

Business, International

Japan Seen With First Trade Gap Since ‘63 in JPMorgan Outlook

By Eleanor Warnock

Japan probably recorded its first annual trade deficit since 1963 last year, part of a shift that may see the world’s largest net creditor come to rely on inflows of foreign capital by 2015, according to JPMorgan Chase & Co.

“If foreigners don’t believe Japan’s fiscal situation will improve, Japan could become like Greece,” said Masaaki Kanno, chief economist at JPMorgan in Tokyo. “We’re getting poorer as the trade deficit increases.”

Japan’s ability to keep borrowing costs the second lowest in the world depends on its position as a net holder of external assets. A drop in savings as babyboomers dip into retirement funds and as a strong yen erodes company profits could push the nation’s current-account surplus into a deficit, making it more expensive for the country to borrow.

If Japan has a shortfall, the government must reassure investors of Japan’s creditworthiness or risk seeing an increase in bond yields, said Kanno, a former chief foreign-exchange dealer at the Bank of Japan. A failure by Prime Minister Yoshihiko Noda to bolster the nation’s 5 percent sales tax could shake investor confidence, he said.

Japan retained its rank as largest net holder of external assets for a 20th straight year in 2010, with a position of 251.5 trillion yen ($3.3 trillion), according to the finance ministry. Figures for 2011 are due in May. Japan’s 10-year government bond yield, at 0.985 percent today, is the second lowest in the world after Switzerland.


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