Japan’s current account surplus, one of the widest gauges of international trade, reached a record high of 1.93 trillion yen ($13.3 billion) in November, the Finance Ministry said Friday. The surplus expanded 8.7 percent from a year earlier, marking the 10th consecutive month of black ink.
The main factor behind the record surplus was a sharp reduction in the trade deficit, which more than halved to 724.1 billion yen. Imports fell 11.4 percent to 9.35 trillion yen, while exports slipped 4.5 percent to 8.62 trillion yen.
The decline in imports was mainly due to lower energy prices, as Japan relies heavily on importing oil and gas for its energy needs. The value of crude oil imports dropped 32.6 percent, and that of liquefied natural gas imports fell 18.9 percent.
The decrease in exports reflected the slowing global demand amid the COVID-19 pandemic and the supply chain disruptions caused by the chip shortage. Exports to China, Japan’s largest trading partner, rose 1.4 percent, but those to the United States, the European Union, and other Asian countries fell.
Services balance turns positive as inbound tourism recovers
Another positive factor for the current account surplus was the improvement in the services balance, which measures the difference between income from services such as travel and transportation and payments for them. The services balance turned positive for the first time in 11 months, posting a surplus of 24.7 billion yen.
The main driver of the services balance was the travel surplus, which measures the difference between spending by foreign visitors to Japan and that by Japanese travelers abroad. The travel surplus surged over 1.8-fold to 296 billion yen, as inbound tourism showed signs of recovery.
The number of foreign visitors to Japan increased 2.6-fold to 2.44 million in November, according to the government. This was the highest figure since February 2020, when the COVID-19 outbreak began to affect international travel. The government attributed the increase to the easing of travel restrictions for some countries and regions, as well as the hosting of the World Expo in Osaka.
Primary income drops due to lower dividend payments
The only negative factor for the current account surplus was the decrease in primary income, which reflects returns on overseas investments. Primary income dropped 20.3 percent to 2.89 trillion yen, the lowest level since May 2019.
The decline in primary income was mainly due to lower dividend payments from overseas subsidiaries of Japanese companies, especially in the shipping sector. The ministry said that the dividend payments in November 2020 were exceptionally high due to the recovery from the pandemic, and that the payments in November 2021 returned to normal levels.
Primary income also suffered from the appreciation of the yen against the dollar and other currencies, which reduced the value of income earned in foreign currencies. The average exchange rate in November was 113.68 yen per dollar, compared with 104.34 yen per dollar in the same month a year earlier.
Implications for Japan’s economy
The record current account surplus in November indicates that Japan’s external position remains strong, despite the challenges posed by the pandemic and the chip shortage. The surplus also helps to support the yen, which is considered a safe-haven currency in times of uncertainty.
However, the surplus also reflects the weakness of domestic demand, as imports fell more than exports. Japan’s economy contracted 0.8 percent in the third quarter of 2021, as consumer spending and business investment were hit by the resurgence of COVID-19 cases and the state of emergency measures.
The outlook for the fourth quarter is uncertain, as the omicron variant poses a new threat to the global recovery. The government has announced a new stimulus package worth 56 trillion yen ($484 billion) to boost the economy and cope with the pandemic, but its effects may take time to materialize.
