fundamental alert

Japan's Current Account Surplus Shrank 92% in the Year to December

Sunday, 08 February 2009 23:41:20 GMT  |  Ilya Spivak, Currency Analyst

Japan’s Current Account Balance report showed the surplus shrink substantially more than economists expected to print at 125.4 billion yen, the smallest in nearly 12 years. Trading terms deteriorated by a whopping 92.1% in the year to December as sluggish economic growth across key export markets erased demand for Japanese products. The narrower Trade Balance portion of today’s report (which also accounts for cross-border capital flows) released just over 2 weeks ago showed that exports shrank 35% from one year earlier, the worst reading on record and the largest drop in at least 28 years. Dwindling overseas sales have pushed Japanese companies to cut back production capacity and boosted unemployment, weighing on consumer spending and depressing overall economic growth. The central role of overseas buyers may prompt policymakers to take the more drastic step of intervention in the forex market to drive down the value of the Yen, making Japanese exports cheaper and thereby more attractive. A trade-weighted index of the Japanese Yen’s average value against the world’s top currencies rose 30.3% through 2008 as widespread flight from risky assets saw investors unwind carry trades funded by the perennial low-yielder. Looking ahead, things continue to look bleak for the world’s second largest economy: The International Monetary Fund said global economic growth will come to a “virtual standstill” in 2009 to add just 0.5%, and lowest yet in the postwar period. Such a scenario is likely to substantially prolong the economic downturn for heavily export-oriented countries.

Resources

• free demo account
• forex courses
• open an account
• real time news
• free webinars