Japan, the world’s third largest economy, saw a pickup in exports that was aided by a sharp fall in the domestic currency in January. However, the weakening of the yen followed a slew of monetary policy easing measures by the newly elected Shinzo Abe government, which escalated fuel import costs, a major component of Japan’s imports.
The data released by the finance ministry showed that Japan’s trade deficit for the month of January was 1.63 trillion yen ($17.4 billion) -- the largest deficit for a single month in its history after a comparable data study commenced in January 1979. The previous highest deficit of 1.48 trillion yen was recorded for the same month last year. Analysts' estimates had predicted that the trade deficit would be 1.303 trillion yen for the month.
In January exports rose 6.4 percent compared with a year earlier to 4.79 trillion yen, the first increase in eight months. The increase was greater than analysts' forecast for a 2.6 percent increase -- and it was due to larger shipments of automobile parts and other items, data showed, than expected. Exports to the United States surged by more than 10 percent, while exports to Europe declined by 4.5 percent, owing to the economic slowdown in the region.
Imports rose 7.3 percent to 6.43 trillion yen, due to the huge import costs of petroleum products, liquefied natural gas and crude oil, all stemming from a depreciated yen. Japan is forced to rely on fuel imports to meet its energy needs as its nuclear reactors have been idle for almost two years now after a disaster at one of its plants following a tsunami.
Prime Minister Shinzo Abe has announced an aggressive fiscal stimulus policy to boost Japan's economy, which is mired in recession and deflation. The easing of its monetary policy saw its domestic currency weaken against the dollar, boosting stocks and exports in January. However, the radical measures drew comments from South Korea and G7 countries over the Japanese government and the Bank of Japan’s interference in the forex trade.
The yen has weakened more than 15 percent against the dollar in the last two months, prompting the G7 and Japan’s trade partners to warn the country about the possibility of a currency war among nations.
Japan’s new monetary easing measures figured in the recent meeting of G20 finance ministers and central bankers in Moscow. However, the group stopped short of delivering a direct warning to Tokyo over the currency issue.