Japan, the world’s third largest economy, has released data on its annual trade deficit, and the numbers do not look encouraging. The trade deficit for 2013 rose to 11.5 trillion yen (around US$112 billion), a costly 65% spike from the year before that. A weakened yen and public pressure to keep its nuclear plants that mothballed in the aftermath of the 2011 earthquake and tsunami has pushed up the cost of fossil fuel and other energy related imports, making for the highest trade deficit recorded for Japan.
Japan Prime Minister Shinzo Abe, at the beginning of his rise to power, made an aggressive move to weaken the yen, thereby giving enough buffer for Japan’s exports to prop up growth in the stock market. But because of the yen’s relative weakness in the global market, Japan has had to pay more for fuel imports to keep their energy sector stable. The Japanese currency fell more than 20% against the US dollar between January and December last year because of “Abenomics”, but Japan’s imports of Liquefied Natural Gas (LNG) rose 0.2% by volume in 2013 from the previous year – the value of those imports surged nearly 18%. Industry experts have noted that this is Japan’s third consecutive year to post an annual trade deficit, where the country is traditionally strong on the foundation of its export-oriented economy.
“This is the costly flip side of Abenomics,” Martin Schulz of Fujitsu Research Institute in Tokyo said in an interview. “The overall cost of imports is going up, but Japanese exports are not rising enough to offset that,” he added. A weak yen bolsters Japan’s exports, making them cheaper for foreign buyers and so more attractive in the market. A weak yen also buffers profits of these exporting Japanese companies when they repatriate their overseas earnings back home. The hope has been that a significant increase in exports will aid Japan’s floundering economy. The immediate impact, however, has been that the weakened yen has also made imports – particularly fossil fuels for thermal energy generation — more expensive, and has affected the country’s trade balance.
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