-Hongbin Qu, economist at HSBC
Japan's trade balance deficit reached a record high of $109 billion over 2014, marking the fourth consecutive annual shortfall, amid increased import prices and huge post-Fukushima energy costs. Exports rose 4.8% to $620 billion, whereas imports gained 5.7% to $763.7 billion in 2014. Fuel costs had a serious impact on Japan as it struggles to close the gap after the 2011 atomic crisis, forcing Japan to abandon its nuclear source, which accounted for more than a quarter of total power supply. The Yen weakened over the 2014 to 117 versus the US Dollar, making exports cheaper and import costs higher, especially on energy. The trade deficit, however, halved in December to 660.7 billion yen, compared to the previous year, the main reason for which were slumping oil prices. Exports increased better than expected, by 12.9% in the last month, also contributing to the trade deficit compression. The deficit is expected to narrow even further due to falling prices on crude oil, that lost around half of its value to less than $50 per barrel, are not fully reflected in the cost of imported petroleum. Meanwhile, minutes showed that the quantitative and qualitative monetary easing has been having its intended effects, therefore the BoJ will continue with the QQE in order to achieve price stability target of 2%. The CPI will remain lower due to slumping prices of crude, whereas the limit of outstanding loans will be increased by the bank from 7 trillion to 10 trillion yen, as well as doubling the amount of funds offered to each institution under a separate growth programme.
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