Cars awaiting loading on a ship for export in Yokohama. Photo: REUTERS file
business

Japan's current account surplus shrinks to 5-year low as exports plunge

6 Comments
By Daniel Leussink

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© Thomson Reuters 2020.

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Cars demand is gonna increase later. Currently half of Asia is suffering from intense floods. This monsoon season has been pretty bad for everyone. The amount of damage done is ridiculous. Just cars being flooded alone is already reaching all time high. I hate the typhoon season.

-3 ( +1 / -4 )

Japan posted its smallest current account surplus in more than five years in June"

Come on give it a break will ya, this was coming in light of the SAR2 pandemic. See if Japan gov would have learned its lessons from SARS1 and origin, Japan would not be in this mess now. It should have closed the borders immediately not months later when it was much to late. Now the figures are coming in and its bleak, well like it always does in the market what goes down eventually goes up, like a roller coaster.

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Current Account is a rather complicated matter, so one can't simply said deficits or surpluses are good or bad. It depends on the domestic situation and international situation of a country, so one can make a sound judgement. Well, Japan has been performing worse every year, and the economy is very stagnant. Current Account surplus or deficit won't improve the already bad conditions that Japan currently suffer.

Nomura Holdings, the joke of investment banking among global investment bankers, basically summarized the nature of Current Account here.

"From the above current account identity, we can see that a large current account deficit driven by a sharp fall in the gross domestic savings is often the ‘bad’ type for longer-run growth prospects, as it signals that the country’s foreign liabilities are being used to finance domestic consumption, with little prospect of generating future returns to repay these foreign debts.

On the other hand, a current account deficit driven by a sustained rise in domestic investment can be viewed as the ‘good’ type in the longer run, if the investments earn a high return (e.g., worthwhile public infrastructure projects or high-tech manufacturing plants).

Ironically, while large current account surpluses have insulated Northeast Asia from the EM turmoil, they are mostly “bad” types and not a positive sign in terms of long-run growth potential.

Take Korea for example, domestic saving ratios are high due to the aging populations building a nest egg for retirement and limited investment opportunities for companies. In Thailand, the massive current account surplus resulted from high household debts and prolonged political uncertainty. These economies are struggling with domestic structural headwinds, ranging from rapidly ageing populations, high sensitivity to rate hikes, to low productivity growth. They are also open economies, highly dependent on exports and, therefore, very exposed to the rising risk of an export slump, because of worsening trade protectionism, slowing growth in China and the global electronics cycle turning down."

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What a wretched, wretched world

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The strong-ish yen and weak-ish dollar can't be helping matters.

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@garypen

"The strong-ish yen and weak-ish dollar can't be helping matters."

The ¥ earned domestically - to $ savings account will work in some peoples favour

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