Japan surplus falls, global slump takes toll

Shinichi Kishima, Reuters, Tokyo

Japan's current account surplus shrank for the ninth straight month in August, government data showed on Monday, underscoring concerns that a worldwide economic slowdown is pushing the groggy economy further against the ropes.

The Ministry of Finance said the surplus, the broadest measure of trade in goods and services, fell 27.1 percent in August from a year earlier to 708.6 billion yen (US$$5.84 billion).

Exports fell 8.4 percent, marking a fifth straight month of decline, and economists said worse news was likely on its way in next month's numbers, which will reflect the impact on trade of the devastating terror attacks on U.S. landmarks.

The figures are likely to add to growing pressure on Prime Minister Junichiro Koizumi to abandon a pledged limit on extra bond issuance this year, as will news that Japan's tax revenues are likely to fall well short of original estimates.

A Finance Ministry source said over the weekend that revenues were seen missing the original estimate of 50.7 trillion yen by more than one trillion yen, which suggests the shortfall will have to be covered by extra deficit spending.

The government begins discussions on an extra budget this week with the reformist Koizumi's pledge to rein in new government bond issuance to 30 trillion yen a year, compared with an original projection of 28.3 trillion yen, increasingly in doubt.

Mamoru Yamazaki, chief economist at Barclays Capital Japan, said Japan's revenue shortfall was likely to grow to two to three trillion yen, adding that the government needed to make policy decisions free of the 30 trillion yen debt cap.

"The 30 trillion yen cap has only a symbolic, largely political, meaning at this point," he said. "The balance of payment data show that both the global economy and the Japanese economy are weak, and things probably took a turn for the worse after the Sept. 11 attacks."

The government was expected begin deliberating on a supplementary budget based on the latest budget projections at a meeting of Koizumi's top economic advisers on the Council on Economic and Fiscal Policy later this week.

The Finance Ministry data showed the trade surplus shrank 37.3 percent to 482.8 billion yen as decelerating global growth, particularly in the high-tech sector, hit the world's second biggest economy.

Despite the fall in the surplus, imports fell for the first time in 22 months -- by 2.9 percent -- and a ministry official told reporters that this reflected the weakness in domestic aggregate demand.

"Imports had been falling on a volume basis for some time now but a weaker yen had been keeping the yen-based total rising. This time, however, the weakness of the domestic economy has overshadowed that price factor," the official said.

"It is difficult to see the decline in the current account surplus halting," said Shinichi Sato, senior economist at Tokyo- Mitsubishi Securities.

Economists expect Japan's balance of payments to take a further hit in September as that month's attacks in the United States severely disrupted air traffic and general business activity for days.

"The attacks will have likely accelerated the fall in exports," Sato said.

This would be bad news for export-dependent Japan. If Japan's gross domestic product shrank again in the July-September quarter, as seems likely after a 0.8 percent contraction in April-June, the country would technically go into its fourth recession in a decade.