Japan's account balance deteriorating

The current account registered a surplus of JPY 282bn in May, marking the lowest over the past four months.

DBS Group Research noted:

The current account registered a surplus of JPY 282bn in May, falling short of the consensus estimate of JPY 401bn and marking the lowest over the past four months.

The goods account was in a large deficit of about JPY 400bn per month so far this year, as domestic demand held up relatively better than external demand due to public and private spending on reconstruction and government subsidies on consumption. Import demand for fossil fuels has also remained strong, owing to the shutdown of nuclear facilities.

One positive note is that the crude oil prices (Brent) have fallen by $20 from the peak levels over the past two months, which will be soon reflected in the pricing of import contracts. A $10 drop in oil prices could help to improve the energy trade balance by JPY 160bn on the monthly basis.

At this point, we still don’t expect the current account to fall into a deficit permanently. The risk of current account deficits would become a stronger possibility by mid-2010s, taking into account the structural decrease in household savings as a result of populating aging, as well as the deterioration of trade competitiveness.