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Japan's current account surplus hits record high
By David Ibison in Tokyo
Published: February 12 2004 10:52 | Last Updated: February 12 2004 10:52


Soaring exports pushed Japan's current account surplus to a record Y15,785bn in 2003, the latest confirmation that the country's export-led recovery is gathering pace, according to preliminary figures from the ministry of finance.


Further signs that confidence in the Japanese economy is returning came with figures showing overseas investment in Japan's stockmarkets in 2003 was Y9,770bn, the second highest level since records began in 1981.

Export growth feeds through to an earnings recovery and stockmarket strength, which explains why the Japanese government has been delaying the yen’s appreciation, a change that would undermine export competitiveness.

The government last year spent an unprecedented Y20,000bn intervening in foreign exchange markets and made clear at last weekend's Group of Seven meeting that it was prepared to continue.

These measures have put a brake on the yen's appreciation but failed to stop it. The Japanese currency hit a three-year high of Y105.16 to the dollar on Wednesday before weakening slightly to Y105.3 on Thursday.

Other figures released Thursday added to the perception that Japan's economy may be moving towards the kind of sustainable recovery that had eluded it for the past decade.

Core machinery orders rose 8.1 per cent in December compared to November, sending a signal that business confidence and business spending remains on track despite November's 7.8 per cent drop.

Richard Jerram, economist at ING, also pointed out in a research note that producer prices, driven by higher commodity prices, rose in January year-on-year for the first time in a decade.

He added, however, that this was not likely to feed through to consumer prices. In the past, producer prices have accounted for only a sixth of changes in consumer prices.

Economists have been keen to remind investors that the country still faces fundamental problems.

Jeffrey Young, economist at NikkoCitigroup, said: “Concern about fiscal problems in the US and Europe has dominated the airwaves but Japan remains the outlier among the major industrialised countries on most fiscal indicators.”

He said Japan's general government deficit came to 8.2 per cent of gross domestic product in fiscal 2002, a full point higher than the Organisation for Economic Co-operation and Development forecast of December 2003.

“The primary reason for the deficit bulge was a steep Y6,000bn decline in general revenues, especially taxes on income, including corporate income. In addition, spending growth on social security programmes outpaced contributions growth by Y1,300bn. Deficits have mounted even though public investment has fallen for eight fiscal years in a row,” he said.

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