Japan Posts First Annual Trade Deficit Since 1980

Published January 25, 2012 4:00AM (EST)

TOKYO (AP) — Japan reported its first annual trade deficit since 1980 as it imported expensive energy to offset shortfalls caused by the devastating tsunami and manufacturers shifted production overseas to avoid the damage inflicted by the strong yen.

The 2.49 trillion yen ($32 billion) deficit for 2011 reflects a 2.7 percent decline in the value of Japan's exports to 65.55 trillion yen ($843 billion). In December, the trade balance was a deficit of 205.1 billion yen, according to the Ministry of Finance figures released Wednesday.

"It reflects fundamental changes in Japan's economy, particularly among manufacturers," said Hideki Matsumura, senior economist at Japan Research Institute. "Japan is losing its competitiveness to produce domestically."

"It's gotten difficult for manufacturers to export, so they're they've moved production abroad so that products sold outside the country are made outside the country," he said.

The yen's surge to record levels against the dollar has made Japanese exports more expensive and also erodes the value of foreign earned income when brought home. Currency levels have forced manufacturers including Nissan Motor Co. and Panasonic Corp. to shift some of their output to factories overseas.

At the same time, Japan is facing intense competition from South Korea, Taiwan and Singapore, where labor and production costs are cheaper.

Japanese manufacturers have been battered by a host of negatives in the past year. The tsunami temporarily disrupted the production of automobile makers and other manufacturers. Weakness in the U.S. economy and Europe's debt problems and recent flooding in Thailand, where many Japanese automakers have assembly lines, also contributed to export declines.

Another major factor behind the figures was the impact of the expensive energy imports Japan turned to after the March disaster touched off a nuclear crisis and led the country to shut down, or not restart, a large portion of its reactors, said Martin Schulz, senior economist with the Fujitsu Research Institute.

He said pressure to import energy will continue to weigh heavily on Japan for the next year, but will subside as the country pursues greater efficiency measures.

Schulz argued that Japan's competitiveness globally remains strong, but that companies have had to change their strategies.

"Japan's exports are really focused on high value exports and this market is fairly strong," he said. "Japan's competitiveness is not going down, but it is producing overseas."

The turmoil in Europe and the U.S. has driven up the yen as global investors flock to the currency as a relative safe haven. The yen hit multiple historic highs against the dollar last year.

The yen has weakened to around 77 to the dollar recently, but exporters say it is still too high. Five years ago, the dollar was trading above 120 yen.

Matsumura believes that Japan will likely log another trade deficit this year amid prospects for high energy prices and a persistently strong yen, but that renewed strength in the global and Asian regional economies in 2013 could put Japan back into the black in 2013.

By Salon Staff

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