Japan's current account surplus falls sharply in December

The impact of persistent trade deficits and a weak yen on the country's once solid balance of payments was highlighted by TOKYO Japan's current account surplus falling sharply in December after a record rise the previous month, finance ministry data showed on Wednesday.

The yen's slide over the past year has resulted in a huge increase in the cost of imports, including commodities and oil, which were already on the rise due to the Ukraine war, putting immense pressure on Japan's current and trade accounts.

The current account surplus was 33.4 billion yen $255.51 million in December, down from a surplus of 1.8 trillion yen the previous month, boosted by income gains from securities investments and hefty Japanese investments overseas.

The latest figure shows a decline of 334 billion yen from a year earlier and undershot economists' median estimates for 98.4 billion yen surplus in a Reuters poll.

Japan's current account surpluses have been seen as a sign of export potential and a source of confidence in the safe-haven yen, but the account has fallen into the red on a monthly basis due to a weaker yen, which has boosted the costs of imports.

The yen weakens the cost of imports but the boost to exports that become cheaper to foreign buyers has not been as great due to firms shifting production abroad - a result of a previously strong yen making exports pricey.

Analysts expect Japan's balance of payments position to improve by the end of the year, as downward pressure on the yen eases in line with an expected pause to the U.S. Federal Reserve'sFederal Reserve's monetary tightening streak.

Yoshimasa Maruyama, chief economist at SMBC Nikko Securities said that the current account would bottom out this year as energy prices level off and the U.S. rate hikes hit the ceiling.

There is some worry in financial markets that Japan's hefty public debt and a dwindling current account surplus could cause weakness in the yen over the long run. The yen was down nearly 20 per cent against the dollar last year, weighed down by the Bank of Japan's commitment to its ultra-low policy, even as other central banks including the Fed embarked on aggressive interest rate increases.

Japan's dire public debt could weigh on the yen currency in the long run, although capital flight is unlikely to materialise soon, according to Maruyama.

Since comparable data became available in 1985, the primary income surplus, which includes direct investments and interest payments and dividends from past investments overseas, hit 1.8 trillion yen, making it the largest amount for the month of December.

For the whole of 2022 the current account surplus fell the most on record -- by 10.1 trillion yen from the previous year -- to reach 11.4 trillion yen. A weakened yen and rises in energy prices took their toll, resulting in record trade deficits, although this shortfall was offset by a record amount of primary income gains.