Japan Current Account: Updated July 17, 2024.

 

Japan logs record 25.34 tril. yen current account surplus for FY 2023

Article Source:  https://mainichi.jp/english/articles/20240510/p2g/00m/0bu/008000c

Ideas:

Japan seems to be heavily dependent, now, on international trade and exports. along with investment returns and of course the significant increase in foreign tourists entering Japan.

It seems the Japanese domestic economy is never Japan's priority but manufacturing and exports seem to be Japan's priority.

Of course the weak Japanese yen, as increased foreign investment returns along with increasing the value of Japanese exports, and then add in the weak yen with foreign tourists, who have more purchasing power, so there is going to be a current account surplus.

At this time, as Japanese GDP to debt ratio is the worst among OECD countries, increasing the current account might help to decrease the Japanese government debt.

But the challenge is despite being an export oriented economy, there is still the challenge of the Japanese domestic economy which seems to be stuck in limbo and doesn't grow much.

There seems to be two parallel economies in Japan; the export oriented economy, which is strong and the domestic economy which seems to always be weak, or not growing very much.

Foreign tourism, while being in Japan and spending in Japan, is still part of the export economy.

Most likely, the Bank of Japan and the Japanese government didn't do much to reduce import costs other than some subsidies here or there, and maybe they just let inflation and the yen, be natural as much as possible, and just let things be as is.

Of course Japan is very much as resource-poor country, and has to import much of what is needs from food, raw materials, and energy commodities.

While the US and the EU increased its key rate to try and reduce inflation, Japan, or the Bank of Japan didn't do much, as it seems its strategy was to just let it be normal and or the Bank of Japan felt any rate increase will have too many side-affects for the Japanese economy.

To be fair, the US economy is far from a recession situation, at this time, as the US economy is still the strongest in the world.

And the US Federal Reserve has not increased its key rate in 2024, and didn't do much in 2023, too, and has hinted about decreasing the rate sometime in 2024.

Yes, the Bank of Japan too a different approach or strategy to inflation, as the US increased its rate, several times, while the Bank of Japan kept it ultra-low policy, to inject funds into the Japanese economy, to get businesses and households a chance to use money in the Japanese economy.

The weak Japanese yen, while not exactly a strategy, might have forced the Bank of Japan to keep the yen weak as it help exporters and bring more money into the Japanese current account.

Of course it hurts importers, as the weak Japanese yen, increases import prices in the Japanese domestic economy.

So the Bank of Japan has to try and balance the export oriented economy and the lesser domestic economy, and it seems the export economy is on the winning side at this time.

The weak yen is a huge advantage for foreign tourists who want to go to Japan and spend as their purchasing power increases. which of course is good news, for the travel surplus and all of the Japanese businesses that provide services to foreign tourists.

Of course the weak Japanese yen doesn't help the Japanese tourist who want to travel to the EU or even the US.

And as the Paris Olympics are getting closer it will be interesting to see how many Japanese tourists travel to France and basically ignore the weak Japanese yen to the stronger EU dollar.

Again, the travel surplus goes into the Japanese current account, which might help decrease the Japanese government debt, which again, is the highest in the world, at this time.

Global digital services will continue to be a challenge for the Japanese economy, as maybe the Japanese economy and businesses are still heavily dependent on global digital services.

Its kind of like when Microsoft seemed to rule the digital economy or just before everything went digital, as many countries and businesses had to pay premium payments to Microsoft and other companies too.

It seems, and maybe a good strategy, that Japan is using the current account as a way to try and reduce its government to GDP debt ratio, and again its the worst among advanced economies, at this time.

But can the Japanese government reduce its debt by just using the current account, with trade services, and foreign tourists, a weak Japanese yen, and strong exports, and foreign investments too.

Some might say Japan is a ticking time bomb as the GDP to debt ratio might someday begin to affect the pension system if it hasn't already, and then the current group of economically active workers in Japan are going to be greatly affected in the future.

Have a nice day and be safe!