Japan trade surplus up 40% but seen peaking

Japan trade surplus up 40% but seen peaking

TOKYO (Reuters): Japan's trade surplus jumped 40 percent to a record high of 13.99 trillion yen (US$122.72 billion) in 1998 and posted an unexpectedly large 14.4 percent rise in December as the weak domestic economy caused imports to slump.

Economists say imports could well stay stuck in the doldrums, but the strong yen will help cap gains in the surplus in coming months by making Japanese exports more expensive overseas.

Japan's touchy surplus with the United States rose by about a third in 1998 to 6.70 trillion yen -- its highest level since 1987 -- and was up 23 percent in December alone.

But the Finance Ministry said the value of Japanese steel exports to the United States -- a key trade friction flash point -- fell 20.8 percent in December from a year earlier to 23.78 billion yen. The volume of those exports declined 14.9 percent to 364,000 tons.

U.S. steel companies have filed anti-dumping suits against Japanese steelmakers as well as those from Brazil, South Korea and Russia, and some U.S. senators are backing legislation to make it easier to protect the industry from import surges.

U.S. trade officials have said Japan needs to cut its steel exports to America sharply or face possible retaliation and that they would look at December's data to see if the trend was down.

Deputy U.S. Trade Representative Richard Fisher told Reuters here on Monday that Washington would look at the latest steel data "very closely" but that it was too early to comment.

Fisher was kicking off a series of meetings with senior Japanese officials in which he will be discussing a long list of trade issues from apples and rice to insurance and steel.

But he said sectoral issues should not mute Washington's broader message that Japan needs to cut the red tape that is strangling growth to help get its economy out of a slump.

"The key thing now is for Japan to lift itself out of the doldrums," he told Reuters Television, adding that deregulation and restructuring were what "saved" the U.S. economy.

"There will always be bilateral irritants. We are allies, we are friends. We need to resolve these issues and we will."

Japanese exports overall slipped a meager 0.6 percent but imports fell 10.5 percent in 1998. In December alone, exports fell by 12.2 percent but imports fell faster, posting a 21.7 percent drop for the month from December 1997.

Bank of Japan Governor Masaru Hayami told central bank branch managers on Monday that while the pace at which the economy was deteriorating had moderated due to higher public works spending, companies and households remained cautious and prices were weak.

A Finance Ministry official said the pace of the rise in Japan's surplus would slow because exports to Asian nations were unlikely to pick up drastically, while import volumes would rise in the medium term as economic stimulus steps boosted demand.

Economists are far less certain about improving imports but still see the surplus peaking and then staying at high levels.

"In the next few months the effect of the strong yen should start to hit and we will see it (the surplus) peaking out," said Brian Rose, economist at Warburg Dillon Read in Tokyo.

Worries that trade friction will flare as the U.S. trade deficit balloons to a record high this year is making currency markets jittery about a possible weakening of the dollar.

But the market was little moved in Tokyo on Monday morning.

The dollar was trading at around 114.40 yen in early afternoon compared to 114.45 yen in New York late on Friday.