"Domestic demand has strengthened ahead of the sales tax hike, pushing up imports. This is likely to continue until March. Current accounts are likely to return to positive after March although we will likely continue to see trade deficits."
- Takeshi Minami, chief economist at Norinchukin Research Institute
Is a weaker Yen a key to economic stability? Definitely, one of the key pillars of Shinzo Abe's policy positively contributed to economic growth last year; however, according to the latest data current account posted its largest deficit in November on rocketing imports. Weak results, however, were expected and market's reaction was not so impressing. The USD/JPY pair advanced 0.58% to 103.61 soon after the data.
The shortfall stood at 592.8 billion yen, highly above analysts' forecasts of 368.9 billion and posting the biggest deficit since 1985. Export growth was 17.6% from the same month a year earlier, while imports advanced 21.1%. The Japanese currency depreciated around 16% last year against the buck, on the back of aggressive monetary easing by the Japanese central bank that was ready to use any means necessary just to stoke inflation and boost productivity in the world's third largest economy. At the same time, weaker domestic currency and extra demand for fuel and energy, because of nuclear-plant shutdown, pushed import prices higher, highlighting drags on the economic recovery that will also include a planned consumption tax hike in April. While the economy is still performing better than a year ago, a shift towards sustained deficit is likely to undermine investor confidence in Japanese government debt.
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