Japan slumps to trade deficit

Japanese exports, such as automobiles, have fallen by 5.1 percent in the year to January, 2001.

TOKYO, Japan -- Fresh proof of Japan's economic woes has emerged in the form of its first trade deficit in four years, amid slumping demand out of the United States.

Japan's Ministry of Finance said exports plunged 5.1 percent, year on year, in January as the country fell to a ¥95.3 billion ($824.1 million) trade deficit -- the first since January 1997.

While data for the first part of the year is always erratic because of holidays, economists said the latest data points to a definite slowdown in the Japanese economy, and warned of a thinning trade surplus for calendar 2001.

"Figures released today raise special concerns about slumping economic activity," says Nikko Salomon Smith Barney economist Tomoko Fujii.

"Export prospects are worsening at an alarming pace, removing one of the primary supports to the mild economic expansion Japan has managed over the last two years."

G7 concerned for Japan's economy

The precarious state of Japan's economy was a highlight of the recent Group of Seven (G7) meeting in Italy, at which the leaders of the world's most powerful seven economies pointed to a lack of leadership in Japan to map out effective measures to revitalize the economy and its weak financial sector.

In volume terms, which strips out the effect of currency and price changes, exports dropped 5.1 percent in January after growing 1.8 percent in December.

By contrast, imports surged by 24.3 percent in value, to ¥3.72 trillion, and by 11.9 percent in volume in January, with imports of oil, textiles and information technology goods all remaining strong.

"Exports have been falling since July last year because of the strong yen, and then because of the U.S. downturn, as well as a similar downturn in Europe and Asia," says Daiwa Institute of Research chief economist Susumu Okano.

Declining yen should help

"The yen has declined since then, which will lead to an improvement in the trade situation but not until about the third-quarter of 2001, and there is no doubt that the total trade surplus for the year will be much smaller than in 2000."

Ron Bevacqua, chief economist at Commerz Securities, highlighted slowing growth in exports, which rose just 3.1 percent by value from a year earlier to 3.62 trillion yen.

"It's the export recovery that has been the trigger for the economic recovery cycle over the past two years," Bevacqua said. "The recovery is over."

The fall in exports underscores the difficulties being experiences by major Japanese exporters -- mostly in the high-tech consumer goods sector.

NEC Corp, the world's third-biggest chipmaker and Japan's largest supplier of personal computers, and Matsushita Electric Industrial Co, the world's biggest consumer electronics manufacturer, cut their annual operating profit forecasts on Tuesday by 24 percent and 15 percent respectively.

GDP nail-biter

The Ministry of Economy, Trade and Industry's (METI) all-industries index also suggested that Japan's stop-go economy of the past decade is once again running out of steam.

The index, regarded as a rough-and-ready proxy for gross domestic product, rose 1.3 percent in December from November.

But for the October-December quarter, the index was flat after increasing continuously since the final quarter of 1998.

GDP fell 0.6 percent in the July-September period, meaning that ministers will have an anxious wait for October-December GDP data next month to see whether the economy has managed to skirt two consecutive quarters of shrinking output -- the widely accepted definition of recession.

The METI data showed a sharp slowdown in the communications sector, one of the engines of Japan's tentative recovery in the first part of 2000, with quarterly output dropping 7.2 percent.

Falling exports hurts production

Looking ahead, Mamoru Yamazaki, chief economist at Barclays Capital, said the drop in exports boded ill for production plans.

"While the rise in imports suggests that Japan's domestic demand is still relatively firm, the slowdown in exports suggests there are chances for cuts in production plans among domestic firms for the January-March quarter, as was the case in October-December."

Asia led the gain in imports. They rose 28.7 percent from a year earlier, helping to plunge Japan into a trade deficit with the region of 184.8 billion yen.

Cost-cutting Japanese firms have increasingly been turning to cheaper production sites in Asia for everything from towels to semiconductor chips.

Reuters contributed to this report.

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