Japan Trade Surplus Surges 200% In May

Japans contentious trade surplus showed a dramatic rise for the second month in a row in May, giving Prime Minister Ryutaro Hashimoto some unwelcome news to take to this weekends summit of G-7 nations.

Japans customs-cleared trade surplus, often the source of bitter rows with the US, jumped more than 200 per cent in May from a year earlier to 738.27 billion yen ($6.53 billion), the finance ministry said yesterday.

The surplus with the US, which has already been grumbling about the growing trade imbalance between the two countries, surged 93 per cent in May from a year earlier to 322.87 billion yen ($2.85 billion).

 

We need to continue to keep careful watch to see whether there has been a change in the declining trend of the trade surplus, a senior finance ministry official told reporters.

Until recently, the ministry had steadfastly maintained that the trade surplus was still basically on a downward path, although it rose in some months earlier this year on a year-on-year basis.

Mays surge reflected a slowdown in imports after a rise in Japans sales tax in April, and the effects of a weaker yen.

The dollar edged down against the yen on the trade figures as currency markets speculated that Japanese and US governments would favour a higher yen to rectify the trade imbalance. The dollar briefly fell below 113 yen after hovering above 113 yen in early Tokyo trading.

A strong yen makes Japanese goods more expensive in global markets, thus hurting their competitive edge and curbing exports from Japan.

Its the eighth straight month its up with the US. Im sure the US will bring it up at the G-7 meeting but I dont think...they are likely to make anything dramatic out of it, said Michael Martnett, chief economist at Merrill Lynch, Japan.

Hashimoto is due to meet President Bill Clinton on Thursday before the June 20-22 summit of the Group of Seven (G-7) leading industrialised nations in Denver, Colorado.

The summit brings together the leaders, finance ministers and foreign ministers of Britain, Canada, France, Germany, Italy, Japan and the US, who will be joined by Russian President Boris Yeltsin.

Japanese and US officials have played down suggestions that Tokyos trade surplus will be a major issue at the summit.

Treasury Secretary Robert Rubin said on Monday that the world has a strong interest in seeing Japan achieve a strong economic recovery led by domestic demand, without running up huge trade surpluses.

A US official in Tokyo, reacting to Wednesdays figures, said the data reinforced the concern that the surplus may have shifted back to a rising trend.

We still cant make any final judgement based on two or three months or even a quarter, but the numbers do reinforce our concern that the surplus appears to be climbing again, the official said.

Economists said the surge in the overall trade surplus in May was partly due to slower consumption after an April 1 increase in Japans sales tax, which has put the brakes on import growth.

A relatively weaker yen compared with a year ago has also fuelled a rise in exports. The surplus started rising earlier this year after a long period of decline.

In May, exports grew 20.5 per cent while imports rose six per cent. Exports of cars, computers and steel rose 43 per cent, 25 per cent and 32 per cent respectively.

But economists said the overall surplus is unlikely to keep rising at a rapid pace.

The surplus will not continue to rise at the rapid pace seen in May, partly because companies are cautious about increasing production due to uncertainties about the economy, said Kenichi Futakami, an economist at Daiwa Bank Research Institute, adding that car producers like Toyota and Nissan may try to restrain exports in a bid to avoid trade friction.