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Further improvement in Japan’s current account surplus to be limited


By Harumi Taguchi, Principal Economist, IHS Global Insight

Key Points:

  • Japan’s current account surplus increased by 36.5% from the previous month to JPY2.0 trillion (USD19 billion) on a seasonally adjusted basis, and also rose by 23.1% year-on-year (y/y) on a non-seasonally adjusted basis. The y/y improvement reflect seven consecutive months of trade surplus, due to steeper declines for imports (-18.3% y/y) than over exports (-9.6% y/y), offsetting the service balance deficit and softening the primary income surplus.
  • While yen strengthening weighted on both export and import prices, improvement in export volumes supported a month-on-month (m/m) increase and a narrower y/y contraction in exports. However, the service balance slipped into deficit on a non-seasonally adjusted basis due to a weaker balance for travel and other services.
  • A rising yen softened growth in the number of tourist from abroad and dampened their spending, but it also boosted the number of residents who traveled abroad for vacation.
  • While the surplus in the primary income balance continued to narrow by 2.1% y/y, this was limited largely dues to m/m increases for income from portfolio investments.

IHS Global Insight Views:

Although Japan’s current surplus reached JPY10.6 trillion in the first half of 2016, topping JPY10 trillion for the first time since the second half of 2007, recent yen strengthening and a softer outlook following the UK’s Brexit vote could limit further improvement in its current-account surplus.

Weak oil prices and sluggish domestic demand underpinned the trade surplus, but a rising yen will weigh on exports in prices at first and later in volumes.

Negative interest rates will continue to encourage overseas investment and create weak external demand, as well as downside from yen strengthening. Taken together, these will suppress corporate earnings from overseas operations and income from foreign currency assets. These downside drivers will also weigh on service receipts, particularly from tourism.

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Source: The Insiderstories
Further improvement in Japan’s current account surplus to be limited

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