Japan piles up trade surplus, but domestic economy is in doldrums
Japan's showballing global balance-of-payments surplus is provoking warnings here of fresh trade friction with the United States and Europe. Everyone agrees that something should be done -- but no one has come up with an idea that would work.
Worried and baffled government officials concede that the present policy of "benign neglect" -- letting exports grow, imports fall -- cannot continue.
Analysts who say the trade surplus will shortly reach "dangerous proportions" point out, for example, that Japan will probably have a record $16 billion advantage with the US this year, compared with $12 billion last year. The surplus with Europe will grow from $8 billion to $10 billion.
Measures have to be taken to encourage import demand by stimulating the domestic economy. But that is proving easier said than done.
In the first quarter of the current fiscal year (April-June) the basic trade surplus was $5.5 billion. After inclusion of nontrade elements, the overall current account was $2 billion in the back.
Officials of the Ministry of International Trade and Industry (MITI) say the surplus for the entire year could well hit $6 billion. And yet, government economists had originally expected a deficit of about the same amount.
One factor is slumping oil demand. In June, for example, Japan bought 15 percent less crude oil in dollar terms than it did a year ago. And no one is in a mood to step up oil imports just to make the trade figures look good.
But the underlying cause is a domestic slump. The Economic Planning Agency (EPA) originally forecast domestic demand would provide the main thrust of a 5.3 percent targeted growth in the gross national product. Instead, to the EPA's embarrassment, virtually all the gain so far has been due to external forces.
Although the economy generally seems to be picking up steam, the depressed states of basic industries like petroleum importing and refining, petrochemicals , aluminum, chemicals, and paper pulp -- all suffering from the higher cost of imported raw materials -- are holding everyone back. And there are definite limits to what the government can do to bail them out of trouble.
Personal spending is also in the doldrums, with most households apparently saving more against expected hard times ahead.
Big business investment is slowing, according to the EPA, after a brief surge over the past year.
The government is reportedly considering an "emergency" plan to buy an assortment of goods ranging from uranium to aircraft, and stockpile basic raw materials and strategic metals -- to try to pare down the surplus.
A similar package was worked out in 1978 when Japan was under fire for creating internal economic growth through an aggressive export expansion program. But the ad hoc measure wasn't really effective, and importers understandably didn't like it.
But MITI is calling for a much wider package of economy-stimulating measures. This would include greater public works outlays, moving up the investment plans of the power industry, increasing official petroleum reserves, giving financial help to small businesses, and aiding the depressed housing industry.
In theory, this would generate more demand for imports. But no one can say how much more.
And not everyone likes the MITI idea. The Finance Ministry is hardly in a reflationary mood, absorbed as it is in Prime Minister Zenko Suzuki's plan to cut spending and end the state of chronic budgetary deficits (currently 26 percent against a high of 38 percent).
The Bank of Japan, concerned with the yen's depreciation and the high interest rates prevailing in the US and elsewhere, is in no mood to cut its central rate or take any other steps to stimulate the domestic economy.
Of course, Japan could cut its exports. No, say MITI experts. This country has to maintain a high rate of exports to survive because of its lack of raw materials -- and, anyway, the car industry and several other key contributors to the export total are already making big sacrifices through voluntary and mandatory restraints.
And yet something has to be done in a hurry.Thus, given the wider political implications, many experts predict the MITI view will prevail and that a grandiose reflationary package of measures to stimulate the domestic economy could be announced within a month or so.
Given the severe fiscal and monetary restraints on the government, however, these same experts, believe that whatever measures emerge will prove -- as in the past -- largely cosmetic and ineffectual.