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Stronger Yen, Oil Needs Shake Japan’s Export Economy

A trade deficit in Japan is truly a rare event. But the strengthening yen and need for higher oil imports (due to the nuclear accident) have resulted in the first deficit since 1980. While most of this appears short-term in nature, Japan’s export driven economy could face increased pressure in 2012 should global economic growth remain weak. Ongoing strength in the yen would likely exacerbate the effect as Japanese goods become less competitive worldwide.

Japan Posts First Trade Deficit Since ’80

Japan posted a ¥2.5 trillion ($32 billion) trade deficit last year, its first annual shortfall since 1980, and economists expect more deficits ahead as the yen remains strong, global growth slows and Japanese demand for energy imports continues to surge. A slew of unusual events, such as the March earthquake and nuclear accident and the European debt crisis, played a major role in pushing Japan into trade deficit. Another key factor was autumn flooding in Thailand, a key production center for many Japanese manufacturers. These factors helped to produce a shortfall of ¥205.1 billion in December, worse than the ¥150.5 billion shortfall forecast by analysts. Many economists see no quick end to the trade shortfall, with Japan’s export-driven economic model losing its luster as the strong yen continues to hollow out the domestic manufacturing base. The nation’s shift away from nuclear power leaves it no choice but to import more energy.

Read more in The Wall Street Journal.

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