In January, Japan recorded its largest current account deficit in history, as a combination of the global slowdown and China’s Lunar New Year holidays hampered the country’s ability to earn money through trade.

The trade balance, which is part of the current account, also reached a record low.

The current account deficit, at 1.98 trillion yen ($14.43 billion), was more than double the 818.4 billion yen median market forecast. It was the largest on record, according to the government, which released the figures on Wednesday.

According to Ministry of Finance data, Japan’s current account balance fell for the second month in a row in January, highlighting the country’s waning strength in international trade.

However, the primary income balance, another component of the current account, increased by 350 billion yen year on year to a 2.29 trillion yen surplus in January, owing to interest earned on foreign securities investments.

This reflected the country’s trend of earning income from capital parked abroad rather than sales of goods and services.

According to the statistics, the trade deficit of 3.18 trillion yen was the largest since relevant data became available in 1996.

The dollar rose to 137.49 yen, its highest level since mid-December, as a result of the data. This fueled a dollar rally fueled by Federal Reserve Chairman Jerome Powell’s reaffirmation on Tuesday of the Fed’s determination to reduce inflation to its 2% target rate.

The current account data also emphasizes the pain that persistently high energy costs are inflicting on Japan’s economy, the world’s third largest, which is heavily reliant on imports of fuel and raw materials.

Exports suffered in January as foreign demand slowed, particularly in China, Japan’s largest trading partner, amid a global wave of monetary tightening aimed at containing inflation.

The Lunar New Year holidays in China, which temporarily reduce imports, occurred in January of this year. They were in February last year.

Japan’s January import bill was pushed higher by elevated prices of fuel and other commodities, partly a result of weakness of the yen and Russia’s invasion in Ukraine. This outweighed a smaller increase in exports.

Japan’s status as an export powerhouse has dwindled in recent years, owing in part to companies shifting much of their production overseas.

(Adapted from DailyStar.net)

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