The Japanese government, on Wednesday, is expected to announce its first annual trade deficit, since 1980. Official trade figures set to be released on Wednesday are expected to show that Japan recorded a deficit for the first time in three decades, mainly on account of large fossil fuel purchases by utilities for power stations, to make up for the loss of nuclear power, following the Fukushima disaster. Japanese trade is expected to be in deficit for the next few years, as it tries to overcome the Fukushimadisaster that released radiation into the atmosphere and forced the government, in the face of vehement public outcry, to shut down most of its nuclear power stations. Import figures for liquefied natural gas jumped to a record last year, as utilities switched to gas-fired power generation to overcome the shortfall left by the shutdown of most nuclear reactors after the March 11 earthquake caused the worst nuclear disaster in 25 years. High crude prices have also seen import values rise, with Japan being the world’s third biggest consumer of oil.
For decades, Japan’s economy has been propelled by iconic export-led manufacturers like Toyota, Honda and Sony, and the March earthquake has hit these companies hard, with production at Toyota only returning to full capacity in the autumn. A rise in the yen to a record last year of fewer than 77 per dollar from more than 250 in 1980 is making Japanese exports increasingly uncompetitive and encouraging manufacturers to move overseas. This shift is most evident in the automotive industry. JPMorgan, in its research, says that by 2014, over 75% of Japanese cars will be produced abroad, up from 67% in 2011. Honda, Toyota and Nissan have all expressed their desire to move production away fromJapan, on the back of the ever-stronger yen. Each one yen rise against the dollar, for example, is estimated to cut Honda’s operating profit by 15bn yen ($195m). Nissan has already shifted a sizeable portion of its production to Thailand and Mexico and, last year, was the second-biggest importer of vehicles into Japan behind Volkswagen. Honda has also decided to produce its top of the range sports car in the US.
Earlier in the day, the Bank of Japan cut its forecasts for 2011 and indicated thatJapan’s financial recovery could take far longer than previously anticipated.