Japan surplus down sharply

Weak U.S. and Asian exports are weighing on Japan's economy

In this story: Net exports dragging GDP Kamei: reforms before Mori ouster RELATED STORIES

By Staff and wire reports

TOKYO, Japan -- Japan's broadest measure of trade dropped a drastic 60 percent in January, year over year.

The current account surplus stood at $2.1 billion, or ¥249.6 billion, according to the Finance Ministry, which released the data Wednesday.

That's the smallest since January 1997 and down from ¥619.2 billion a year ago. The ministry blamed slowing exports to Asia and the United States.

The surplus measures the difference between Japan's overseas income from trade, services and investments and its overseas obligations.

"On the trade side of things, exports were very weak indeed, and imports held up fairly strongly," said James Malcolm, senior Japan economist with J.P. Morgan.

Analysts in fact anticipated a larger drop in the surplus, given export weakness. Exports dropped 22 percent from December and rose 4 percent over January 2000. Japan is more accustomed to seeing double-digit export growth.

The numbers were boosted by unusually strong income from Japanese investments overseas, at ¥740.6 billion. Bond holders received two interest payments in January because December closed with a weekend.

Domestic demand was also still quite strong in January. But other data show that it has since dropped off.

As a result, Malcolm expects the trade surplus to drop much less sharply the next three to six months. But that is not good news, he noted, since it reflects a domestic Japanese economy that is slowing to match already weak export demand.

Net exports dragging GDP

There are several statistical quirks in the surplus numbers. Yamazaki Mamoru, chief Japan economist with Barclays Capital, said the New Year holidays cut into the January figures.

The seasonally adjusted January surplus was ¥843.4 billion, a 3 percent rise over December. But Mamoru said it is clear that poor export demand to the United States and the rest of Asia is hurting Japan.

"I expect this trend to continue, and both exports and the current account surplus to drop throughout the year until the U.S. economy picks up," Mamoru said.

He said net exports are dragging down Gross Domestic Product. As a result, Mamoru forecast a low 0.6 percent rise in GDP for the next fiscal year, from April through March 2002.

Many economists see a revival in exports as key to a Japan recovery. Japan's economy remains mired in a decade-long slump.

But analysts say Japan's political vacuum is sucking any power from attempts to turn its economy around.

Kamei: reforms before Mori ouster

Japan's government threw out an opposition attempt to censure Prime Minister Yoshiro Mori on Wednesday. But Mori remains one of the most unpopular leaders in Japanese history.

Without a strong ruling coalition, experts say the government lacks the clout to stimulate Japan.

Shizuka Kamei, policy chief of the ruling Liberal Democratic Party (LDP), suggested Mori should remain in power for the near term.

Kamei said Wednesday an election to replace Mori should take a back seat to economic reforms. Mori promised over the weekend to move forward an LDP vote on its leader but did not set a date.

"Bringing forward the LDP election is not the top priority," Kamei told a gathering of LDP lawmakers. "Is it really possible to do that and economic steps at the same time?"

Kamei on Friday proposed a package of economic reforms to Mori. They aim to boost the stock market by cutting taxes on stock investments.

He noted implementing the reforms would likely drag on into May and suggested a vote to replace Mori might be inappropriate in that time.

Kamei said GDP growth from April-June would be seriously threatened if the government didn't enact the reforms.

Economists say the reform plans, which must still be accepted by Mori and then voted into law, are steps in the right direction. Unlike previous attempts at reform, the package doles not revolve around public spending.

But they expect few proposals to make it into law, given the ruling coalition's current weakness. There are also signs the government is divided on the best approach to turning the economy around.

Reuters contributed to this report.

Japan parliament rejects Mori censure

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