Japan reports rare trade deficit

ReutersPublished: September 25, 2008

TOKYO: The Japanese trade balance slid into deficit in August, according to data released Thursday, as sky-high oil prices ramped up import costs while exports slowed to a crawl, adding to the pain for an economy already teetering on the brink of recession.

Excluding the month of January, when Japanese exports tend to drop on slower factory activity during the New Year holidays, the August results were the first monthly deficit since 1982, when Japan was reeling from the aftermath of an oil crisis.

In a further sign of trouble for an export-reliant economy, exports to the United States posted their sharpest fall ever from the same month a year earlier, while a Bank of Japan board member warned of more turmoil in the U.S. economy.



"The data really showed that economic conditions both in Japan and overseas are weakening," said Satoru Ogasawara, a strategist at Credit Suisse. "Demand from not only the United States, but also Europe and Asia has been faltering, and it is likely to continue at least until the end of this fiscal year."

Japanese exports edged up 0.3 percent in August from a year earlier, short of a median forecast for a 2.4 percent rise, data from the Japanese Ministry of Finance showed.

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Exports have been losing steam this year as the yearlong mortgage crisis has taken its toll on U.S. financial markets, as well as Europe and Asia, hurting the main driver of the Japanese economy.

A Bank of Japan policy board member, Tadao Noda, cautioned that the U.S. economy could face a deeper adjustment after several major American financial institutions either collapsed or came close to it in recent weeks.

"Just as Japan learned in the 1990s, financial institutions whose capital has been damaged have no choice but to be cautious about corporate lending," Noda, a banking industry veteran, said in a speech.

"Finance serves as the lifeblood of the economy, so if there is clogging that is bound to have an impact on the real economy."

While repeating the bank's standard line that the Japanese economy will eventually return to growth, Noda said he expected world economic growth to recover only in 2010 after slowing in 2008 and 2009.

Hirokata Kusaba, a senior economist at Mizuho Research Institute, said: "The overall tone sounded bearish. He spent more time explaining downside risks for the economy as the situation including developments in the U.S. economy is becoming precarious, while crude oil prices have shown signs of peaking."

Noda's comments did not move financial markets, which are focusing on details of Washington's plan to help banks offload toxic assets.

Investors expect the Bank of Japan to keep rates on hold at 0.50 percent for at least a year.

Japanese exports to the United States fell a record 21.8 percent in August, marking the 12th straight month of annual declines, on sluggish shipments of automobiles.

Exports to the European Union slipped, the third fall in four months, leaving solid demand from emerging economies including oil-producing nations as the only cushion against blows to exports.

Exports to Asia were up 6.7 percent, and those to China, Japan's largest export destination, rose 8.8 percent.

But economists say an easing of oil prices since July, while positive for Japanese consumers and companies in the long run, bodes ill for Japanese exports to resource-rich countries.

"Given the recent retreat of oil prices from the peak level, growth in exports to resource-rich nations may also slow down, adding to the downward momentum of overall exports," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.

The Japanese economy shrank in the second quarter at its sharpest rate in seven years as crumbling U.S. and European export markets hit factories, and consumers tightened their belts in the face of high energy and grocery prices.