Japan's rising surplus may ignite trade friction<\/p>\n
TOKYO (Reuter): Japan's trade surplus surged in June, showing
\nthe country's tentative economic recovery still heavily reliant
\non exports, which economists said was bound to worsen trade
\nfriction with the United States.<\/p>\n
The Finance Ministry said yesterday that Japan's current
\naccount surplus -- the broadest measure of trade in goods and
\nservices -- jumped nearly 56 percent from a year earlier to 1.02
\ntrillion yen in June, the third monthly rise in a row.<\/p>\n
The surplus in merchandise trade alone rose almost 19 percent
\nfrom the same month a year earlier to 1.1 trillion yen.<\/p>\n
At Friday's rate of around 119 yen to the dollar, the current
\naccount surplus in June stood at US$8.5 billion and the
\nmerchandise trade surplus was $9.2 billion.<\/p>\n
Although the figures, which came in at the top end of
\nexpectations, failed to jolt financial markets, economists said
\nthey were not good news for Tokyo policy-makers facing U.S.
\ncharges that Japan is trying to export its way out of its long-
\nrunning economic slump.<\/p>\n
\"We think it's inevitable that trade friction will increase,\"
\nsaid Richard Jerram, chief economist at ING Barings Securities in
\nTokyo.<\/p>\n
\"The main reason for this is that Japanese manufacturers are
\nfacing very weak demand at home so they've been forced to look to
\noverseas markets to sell their goods,\" he told Reuters Financial
\nTelevision.<\/p>\n
Domestic demand, notably private consumption, has been hit by
\na rise in the national sales tax on April 1.<\/p>\n
Jerram said Japan's car industry was a prominent example,
\nincreasing exports to make up for the drop in domestic demand.<\/p>\n
\"They're exporting frantically and provoking quite a reaction
\nfrom the United States. And I think this is just going to get
\nworse in the coming months,\" he said.<\/p>\n
Ministry data showed that Japan's car exports rose almost 40
\npercent in June from a year earlier.<\/p>\n
Earlier this week, U.S. Trade Representative Charlene
\nBarshefsky said U.S. officials were concerned that U.S. car
\nexports to Japan had decreased and that the trade deficit with
\nJapan in general was deteriorating.<\/p>\n
Japanese officials appeared to try to play down the trade
\ndata, saying recent rises in the surplus were due to the increase
\nin the sales tax and that they saw no signs of continuing large
\nrises.<\/p>\n
But economists said the surplus would follow a rising path for
\nsome time due to the recent weakening of the yen, and some said
\nJapanese officials may have no choice but to turn a blind eye,
\ngiven the feebleness of the economic recovery.<\/p>\n
\"There are some views that Japanese authorities will allow the
\nyen to weaken further in order to support exporters and prop up
\nTokyo share prices,\" said Mineko Sasaki-Smith, chief economist
\nwith Credit Suisse First Boston Securities in Tokyo.<\/p>\n
Worsening pessimism over the economic outlook has dampened
\nsentiment in the Tokyo stock market and the Nikkei average of 225
\nleading shares has been treading water below the key 20,000 mark
\nin recent sessions.<\/p>\n
But Sasaki-Smith said such a policy on the yen would backfire
\nas it would fuel U.S. pressure and risk inviting inflation
\nthrough a rise in import prices.<\/p>\n
\"(The U.S.) would not stir up trade issues on the surface, but
\nbelow they would step up pressure,\" she said, adding: \"And if the
\nyen were to weaken further, that would push up import prices and
\nultimately tie the hands of the Bank of Japan.\"<\/p>\n
She said it could lead to a worst-case scenario in which the
\ncentral bank was forced to raise interest rates to tackle
\ninflation, only to see the economy get bruised by higher rates.<\/p>",
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