Surge in oil price drives Japan’s current-account deficit to highest level since 2014

Japan recorded its largest current-account deficit in January since the start of 2014 as a jump in oil-import costs offset gains in investment income, with continuing uncertainty due to the Ukraine crisis and the COVID-19 pandemic.

The current-account data highlighted the dependence of Japan’s resource-deficient economy on imports of commodities and raw materials, which caused the trade deficit to widen.

The world’s third-largest economy posted a current-account deficit of ¥1.2 trillion in January, the data showed Tuesday, versus economists’ median estimate of a ¥880 billion deficit in a Reuters poll. It was the second straight month of deficit and marked the second largest deficit under comparable data going back to 1985.

Surging fuel costs drove up the value of imports by 39.9% in January from a year earlier, outpacing a 15.2% rise in exports.

In addition, Japan’s trade deficit with China widened in January. China-bound exports slowed before the Lunar New Year break, while imports from the country surged due to stocking demand before the holiday period.

“Given such a temporary factor and a hefty investment-income surplus, I don’t think Japan’s balance of payment will swing to deficit as a trend anytime soon,” said Takashi Miwa, chief economist at Nomura Securities.

Japan earns steady and hefty return from its past investment in securities and direct investment overseas, which have replaced trade as the main driver of its current-account surplus in recent years.

While a weak yen also helped inflate the cost of imports, its boost to export volumes was not as great as it once was due to an ongoing shift of exporters’ production abroad, analysts say.

Underscoring changes in Japan’s economic structure, a steady rise in returns from Japanese direct and portfolio investment overseas helped offset the trade deficit, bringing Japan’s primary-income surplus to ¥1.3 trillion in January.

Services trade, which includes cargo shipping and passenger transportation, logged a deficit of ¥737.9 billion, partly as fees for online advertising paid by Japanese companies to foreign firms increased, a government official said.

The travel balance posted a ¥12.3 billion surplus, down from the ¥21.1 billion logged a year earlier, as 75,000 people traveled from Japan while only 17,800 people visited the country.

Japan’s government enforced an entry ban on nonresident foreign nationals in late November as the world grappled with the spread of the highly transmissible omicron coronavirus variant.