Tue, Aug 11, 2009 - Page 11 News List

Japan boosted by rise in current account surplus

NEW HIGH The Nikkei index was at its strongest level in 10 months and machinery orders bounced back by a healthy 9.7 percent, though one analyst urged caution


Hopes mounted yesterday that Japan’s economy is on the mend after its worst recession in decades after the current account surplus showed its first rise in 16 months and machinery orders rebounded.

The surplus in the current account, the broadest measure of trade in goods and services, more than doubled in size in June to ¥1.15 trillion (US$11.8 billion) from ¥471.6 billion a year earlier, the government said.

The figure easily beat market expectations of an increase of 40 percent, helping to lift the Nikkei index up to a new 10-month high.

The trade surplus alone rose more than two-fold to ¥602.2 billion from ¥249.0 billion a year earlier.

Exports increased 14.6 percent in June from the previous month, narrowing their year-on-year decline to 37 percent, after a fall of 42.2 percent in May, the data showed.

Japan’s heavy dependence on foreign demand to drive its economy left it highly vulnerable to the global economic slowdown, which crushed demand for its key exports such as cars, high-tech goods and machinery.

But analysts believe the world’s second-largest economy returned to positive growth in the April-June quarter as exports and factory output rebounded.

“The economy seems to be recovering steadily,” said Toshihiko Matsuno, head of research at SMBC Friend Securities.

But he added: “The prospect of a US economic recovery remains unclear. We need to remain cautious.”

There was also good news on core machinery orders, an indicator of corporate capital spending, which rebounded by a stronger-than-expected 9.7 percent in June after a record low in May. It was the first increase in four months.

Japanese firms have been slashing investment to try to survive the deepest recession in decades, but there are hopes that the worst of the economic slump is over.

Even so, core orders are expected to decline 8.6 percent in the three months to September from the previous quarter, following a drop of 4.9 percent in April-June, according to the manufacturers’ own forecasts.

The worst of the slump in business activity seemed to be over but the pace of recovery was likely to be limited, RBS Securities economist Junko Nishioka said.

Many Japanese firms, including Sony and Toyota Motor, recently announced better-than-expected business results for the first quarter of the fiscal year, although the situation remains very difficult.

“Companies still seem to be refraining from reviewing their plans to reduce business investment, but I don’t think they are pessimistic,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Research and Consulting.

The economy shrank at an annualized pace of 14.2 percent in the first quarter of this year, its worst performance on record, but analysts say Japan is likely to be one of the first major economies to return to positive growth.

UBS economist Takuji Aida thinks Japan’s GDP grew at an annualized rate of 3 percent in April-June, data for which will be released next Monday.

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