Japan posts current account deficit in Oct as economy cools further

By Ambar Warrick

Investing.com-- Japan posted an unexpected current account deficit in October, data showed on Thursday, as sluggish exports, increasingly expensive imports and pressure from high inflation weighed on the country’s economy.

The country logged a current account deficit of ¥64 billion ($1= ¥136.37), compared to a surplus of ¥909B in the prior month.

The decline follows earlier data that showed that the country logged a wider trade deficit in October, with imports surging over 50% from last year as fuel imports continued to remain expensive.

A deep depreciation in the yen was the biggest reason behind the more expensive imports, with losses in the currency also factoring into rising inflation in the country. Headline CPI inflation hit a 40-year high in October, with the trend broadly expected to continue in the near-term.

The yen is among the worst-performing Asian currencies this year as a growing rift between local and U.S. interest rates spurred selling en masse. While the currency recovered some lost ground in the past month, it was still trading down nearly 20% for the year.

Japan’s exports also trended lower this year as overseas demand for goods slowed amid growing fears of a global recession in 2023.

The Japanese economy unexpectedly shrank in the third quarter as a post-COVID boom was countered by high inflation and worsening retail sentiment.

But data on Thursday saw Japan’s third-quarter contraction revised to be slightly less weak than initially expected. The revision shows that the Japanese economy shrank an annualized 0.8% in the third quarter, compared to an initial estimate of 1.1%.

The revision was largely driven by strong capital expenditures during the quarter, which grew at their fastest pace in four years.

An energy shortage spurred increased spending on Japan’s electricity grid, while ultra-low interest rates in the country kept its real estate market attractive.

Still, data on Thursday showed that both external demand and private consumption remained weak, likely highlighting more near-term headwinds for the Japanese economy.