Japan's c/a returns to surplus in Feb despite trade gap

TOKYO Mon Apr 8, 2013 7:58am BST

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TOKYO (Reuters) - Japan's current account registered a surplus for the first time in four months in February as a weaker yen boosted overseas investment income to offset a persistent trade deficit caused by higher fuel imports and still sluggish exports.

Ministry of Finance data showed a surplus of 637.4 billion yen (4.27 billion pounds) in February, more than the 466.3 billion yen expected by economists in a Reuters poll. The surplus was still down 47 percent from a year earlier, but it followed three consecutive deficits, the longest such sequence on record.

The trade balance remained in deficit as the yen's decline has pushed up costs of imported fuels immediately while its impact on exports will take some time to be fully seen.

"The yen's weakness is expected to support exports during the summer, but it is hard to forecast at the moment when it would significantly boost exports," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.

"The pace of export recovery is slow and it has not been clearly felt in the economy because of sluggish recovery in China's economy and higher imports on energy."

Separate data showed Japan's service sector sentiment index rose for a fifth straight month in March to hit the highest level in survey history ,as a softer yen and higher share prices buoyed the mood among consumers. The index matched the level seen in the same month in 2006 when Japan's economy was growing.

Since being voted into power in an election in December, Prime Minister Shinzo Abe has aggressively pursued expansionary economic policies, driving the yen lower and share prices higher. But the Bank of Japan out did all expectations last week, when it unveiled massive monetary stimulus measures to end a long phase of economic stagnation.

On Monday, the yen slid towards 99 per dollar, its lowest in nearly four years, as markets prepared for the BOJ to start buying about 70 percent of debt issued by the government.

That should ensure that borrowing costs will remain low. Longer-term, however, trade deficits and shrinking current account surpluses could threaten Japan's ability to finance a debt pile that is twice the size of its economy, the highest ratio in the developed world.

Data last month showed Japan posted an eighth straight monthly trade deficits in February .

"The trade deficit will probably continue to be covered by income made from investment overseas, but the current account balance will likely swing between surplus and deficit," Kodama said.

Japan accumulated solid current account surpluses for decades, but last year's surplus of 4.7 trillion yen was less than half of 2011's and the smallest on record. ($1 = 97.1700 Japanese yen)

(Additional reporting by Kaori Kaneko; Editing by Tomasz Janowski, John Mair and Simon Cameron-Moore)

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