Japan's current account surplus is declining

Japan's current account surplus has narrowed, as data released by the Ministry of Finance on Tuesday said. Meanwhile, rising energy import prices have outpaced increases in the exports’ value, undermining Japan's national welfare.

The country posted a surplus of 58.9 billion yen ($404.45 million), with the figure below the median forecast of 121.8 billion yen. On a seasonally adjusted basis, its current account deficit of 530.5 billion yen over the past two months has been observed. 

Japan's trade surplus, along with rising overseas investment, point that there was no current account deficit in the country's history, particularly on an annualized basis. However, as trade balance deteriorates, the surplus has also shown a downtrend over the past four fiscal years. 

“The country sees a shift in income from importing countries, including Japan, to commodity exporters," said Masamichi Adachi, chief economist at UBS Securities.  "In my view, the current account surplus is likely to shrink as the trade deficit persists. Thus, purchasing power would decline, making Japan's population poorer."

The current account surplus has long been a sign of the country's export strength and also provided stability to the yen. But in recent years, it has fluctuated in favor of a deficit.

In fact, the value of imports increased as the yen weakened, but growing exports, reduced in price for foreign buyers, haven't been so noticeable. This was due to firms moving their own production overseas. Earlier, the yen's strong position contributed to the high cost of exports.

Japan is offsetting its trade deficit with earnings from a growing number of overseas investments. Their inflows peaked at 3.327 trillion yen in August, due to the weakness of the national currency. Still, falling balance of payments shows structural changes in the country's economy, contrary to the image of a trading power.

Policymakers also worry about the yen’s weakening, as it leads to the import cost’ and household spending’ hiking due to overreliance on fuel and food imports.