Japan's current account deficit to sharply plunge to JPY17.1b

Thanks to trade surplus diving by JPY400b.

According to DBS, the consensus expects a November current account deficit of JPY 17.1bn, sharply down from the surplus of JPY 376.9bn in Oct12. The forecast is justified by the fact that trade surplus fell sharply by JPY 400bn between Oct12 and Nov12 (JPY 250bn, sa).

"We don’t expect the current account to deteriorate persistently in the short term. Exports should bottom out in 1Q13, helped by the ongoing improvement in global
demand conditions and the weakening of the yen," DBS noted.

Meanwhile, the worst in Japan-China trade relations may have been over. News reported that the sales of Japanese brand cars in China have rebound by 72.2%
MoM in Nov12, driven by the release of pent-up demand.

As final demand improves, imports of automobile components from Japan will rise subsequently.

Here's more from DBS:

Nevertheless, export growth is likely to remain moderate this year, in the lack of a strong recovery in global economy or a rapid improvement in Japan-China relations.

Also note that the weakness in Japan’s export competitiveness in the past years was not purely due to the strong yen, but also due to the stagnancy in Japan’s productivity growth and the narrowing of its technology gap with Asian NIEs.

On the other hand, import growth would remain relatively strong this year, given the increase in government spending to boost domestic demand, and the elevated dependence on fuel imports to substitute nuclear power.

Overall, we expect the current account to register a small surplus equivalent to 1.5% of GDP this year, improving from 1.3% in 2012, but still much lower than the 3% average level in 2000-2011.