Record November Current Account Surplus Relieves Japanese Policymakers

Summary

  • The current account data offers a positive prospect for concerned policymakers amidst fears of dwindling balance of payments.
  • November saw a record high for the current account surplus at 1.93 trillion yen ($13.31 billion), according to the Ministry of Finance.
  • Trade deficit shrank as imports declined faster than exports.
  • Japanese exporters, faced with a strong yen, previously shifted production elsewhere.
  • Many Japanese businesses reinvest foreign earnings into overseas operations, portfolio investments, and direct business investments.
  • Primary income balance emerged as the main source of current account funds.
  • In November, the primary income recorded a surplus of 2.89 trillion yen.

Positive outlook for policymakers

The latest current account data brings encouraging news for policymakers worried about a declining balance of payments negatively impacting purchasing power.

Record current account surplus

In November, a current account surplus of 1.93 trillion yen ($13.31 billion) was recorded; a historic high for the month, according to Ministry of Finance data released on Friday.

Trade deficit reduction

The trade deficit has shrunk as the year-on-year dip in imports has outpaced the drop in exports.

Effects of Yen strength

In previous years, the robust yen – peaking at 75 yen to the dollar in 2011 following U.S. quantitative monetary easing – caused Japanese exporters to relocate production overseas.

Foreign income investment tactics

A number of exporters choose not to repatriate earnings from abroad and instead reinvest in foreign operations, engage in portfolio investment, or directly invest in overseas businesses.

Primary income balance: A major source of funds

The primary income balance now overpowers Japan’s trade account, previously an emblem of export strength, and has become the foremost source of current account funds.

The data also pointed to a surplus of 2.89 trillion yen in November’s primary income.

($1 = 144.9600 yen)

This data could significantly impact forex trading and might influence assets tied to Japan’s economic performance.

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