Japan’s current a/c surplus widens on higher exports

TOKYO: Japan’s current account surplus widened at the fastest pace in three years in April as exports rose and a weaker yen increased the value of investments abroad. The surplus expanded 50.3% to 1.99 trillion yen ($16 billion) from a year earlier, the ministry of finance said in Tokyo on Wednesday. The median estimate of 36 economists surveyed was for the gap to widen to 1.84 trillion yen.

Japan’s currency is at a 22-year low on a trade-weighted basis, as the country’s 0.5% key overnight lending rate encourages investors to seek higher returns abroad. The government may come under increasing pressure from trading partners to take action that allows the yen to strengthen. “The surplus is supported by a solid global economy and declining yen,” said Takuji Aida, chief Japan economist at Barclays Capital in Tokyo.

“The current account is almost at the point where the Bank of Japan could face calls from overseas to raise interest rates to stem declines in the yen.” The yen traded at 121.69 per dollar at 11.24 am in Tokyo compared with 121.62 before the report was published.

The income surplus exceeded the trade surplus for a fourth month in April, the finance ministry said. The difference between money earned abroad and payments made to foreign workers and investors in Japan surged 41.5% to 1.56 trillion yen.

“Companies are investing overseas to take advantage of higher interest rates,” said Noriaki Haseyama, an economist at Dai-Ichi Life Research in Tokyo. Revenue from foreign equities, bonds and debt securities accounts for about 80% of the income gap. The Bank of Japan will keep the overnight lending rate at 0.5% at a two-day meeting ending on June 15, according to all 43 economists surveyed.

The bank will raise the rate, the lowest among major economies, in August, according to 11 of 17 economists in a separate survey. Japanese investors’ increasing preference for foreign assets is contributing to the steady increase in the income gap, said Masami Oka, special officer for balance of payments at the finance ministry.

The yen was 11.7% weaker against the euro in April from a year earlier and 1.5% cheaper versus the dollar, according to the ministry. Growth in exports to Asia and Europe helped offset a decline in shipments to the US in April. The trade balance climbed 34.7% to 1.03 trillion yen, the report showed.

Exports climbed 7.3% from a year earlier and imports advanced 3.2%. Exports, imports, the income surplus and the overall surplus all reached records for the month of April.

“The surplus proves that Japan has the economic strength to withstand a US slowdown,” said Masamichi Adachi, an economist at JPMorgan Securities Japan. “As exports remain healthy, the surplus will keep widening.”

Japan’s economy grew 3.3% in the first quarter, more than the 2.4% the government initially estimated, as overseas demand prompted companies to increase spending. The current account tracks the flow of goods, services and investment income between Japan and its trading partners. It includes trade not shown in the customs-cleared trade balance, which the Finance Ministry also compiles.