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Weaker yen, costly oil push Japan’s trade deficit higher

AP – Japan’s weakening yen raised further alarm in Tokyo yesterday as the government reported a bigger-than-expected trade deficit largely due to soaring costs for imports of oil, food and other necessities.

The deficit of JPY412 billion (USD3.2 billion) for March was lower than the previous month’s JPY670 billion but was quadruple analysts’ estimates and a reversal of the JPY615 billion surplus recorded a year earlier for the world’s third-largest economy.

The weaker yen helps make Japanese exports more competitive overseas and fattens profits when they are converted from dollars to yen, but it also raises costs both for consumers and businesses.

Japan’s Finance Minister Shunichi Suzuki and other leaders have expressed concern over the dollar’s precipitous climb, saying abrupt changes in exchange rates add to business risks.

Earlier, the concern was that the dollar would rise to the JPY130 level by the year’s end, The Oriental Economist Editor-in-Chief Richard Katz said in a commentary.

But “The spectre of an out-of-control flight from the yen is setting off alarm bells in Tokyo”,
Katz said.

The price of regular gasoline at a gas station in Tokyo. PHOTO: AP

Suzuki was due to meet this week with United States (US) Treasury Secretary Janet Yellen and discuss currency issues, though it’s unclear what if anything Washington would be able to do as the Fed struggles to bring inflation under control.

The Japanese yen has weakened against the dollar as the Federal Reserve has begun raising interest rates to tamp down inflation that is at 40-year highs. Higher rates attract investors who buy dollars and sell other currencies, like the yen. Despite rising prices for imports, Japan’s central bank has kept its key interest rate at minus 0.1 per cent for years, trying to pull the economy out of the doldrums as the country ages and its population shrinks.

Top financial leaders of the Group of 20 industrialised economies are due to meet in Washington yesterday on the sidelines of meetings of the International Monetary Fund (IMF) and World Bank.

“The government will communicate closely with the US and other monetary authorities and respond appropriately,” Japan’s Chief Cabinet Secretary Hirokazu Matsuno told reporters.

“We would like to monitor the currency’s level with a sense of urgency,” Matsuno said. He noted that Japan, the US and other Group of Seven major economies have agreed that exchange rates should be decided by the markets.

Japan’s exports climbed 15 per cent in March to JPY8.46 trillion (USD65 billion), helped by a recovery in demand as coronavirus outbreaks wane and governments lift pandemic restrictions on travel and other activity. Imports rose 31 per cent to JPY8.9 trillion (USD68 billion).

Imports account for under a fifth of Japan’s economic activity but for nearly all of the oil, gas and coal used to power its economy.

Costs for imports of fuels like oil, gas and coal soared just over 80 per cent from a year earlier in March, while imports of food jumped 22 per cent and those of chemicals rose 42 per cent. Meanwhile, Japan’s vehicle exports slipped 1.2 per cent, with the number of vehicles shipped overseas dropping more than 14 per cent.