DJ: Japan's Current Account Surplus Tumbles On Record Trade Gap

TOKYO--Japan's current account surplus sharply narrowed in the first six months of the year as its merchandise trade gap hit its highest level on record, underscoring the impact of domestic energy problems and fallout from Europe's debt crisis.

Europe's woes continue to weigh on global growth and fuel export-hobbling rises in the yen, while Japan's energy imports keep expanding due to the shutdown of many of its nuclear plants.

The surplus in the current account--the broadest measure of what Japan earns through international trade and investment--shrank 45.0% on year to 3.037 trillion yen ($38.62 billion dollar) in January-June, according to data released Wednesday by the Ministry of Finance.

The decline was the largest ever posted in that period since 1985, when the ministry adopted the current data format. The amount of the surplus was also smaller than any in the past January-June periods.

Economists maintained that the balance will stay in the black in the foreseeable future, a reassuring prospect for Japan's debt-laden government, which they say needs a sustained current-account surplus to finance public debt.

"We will keep seeing trade deficits, but the red figures should become smaller and smaller as oil prices are falling," said Mizuho Securities Research and Consulting senior economist Norio Miyagawa. "The trade deficit should be small enough to be covered by an income surplus."

The data, however, are the latest in a series of indicators suggesting the vulnerability of Japan's ongoing economic recovery, which has relied on stepped-up government spending amid lack of boost from trade. Steady income from Japan's hefty overseas investments may support government finances but doesn't necessary generate growth, while continued trade shortfalls could result in job losses at home, economists say.

During January-June, Japan had a Y2.496 deficit in merchandise trade and a Y3.423 trillion shortfall in trade of goods and services, based on the current-account data. Both figures are larger than any in the past January-June or July-December periods since 1985, the ministry said.

The merchandise trade gap was already above a Y1.8577 trillion annual deficit in 2011.

Japan's trade prospects show no sign of a quick improvement.

Its current account surplus narrowed 19.6% from a year earlier in June to Y433.3 billion, in line with economists' forecast but marking the 16th straight month of deterioration, the ministry said.

The country also had a merchandise trade deficit of Y580.01 billion in the first 20 days of July, up 80.1% on year and the 10th consecutive red ink over that period, according to other data issued by the ministry in the day.