Japan's trade deficit hits record high on fuel imports

Japanese carmakers have been among the worst hit by a strengthening yen and natural disasters

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Japan's trade deficit surged to a record high in January as a strong yen hurt exports and its nuclear crisis resulted in increased fuel imports.

The deficit stood at 1.5tn yen ($19bn; 12bn) as exports dipped 9.3% from a year earlier, while imports rose 9.8%.

Fuel imports went up because most of its 54 nuclear reactors were shut after the earthquake and tsunami last March.

Japan has also been hurt by a slowdown in its key export markets such as the US and the eurozone.

"Special factors such as the earthquake last year, the nuclear problem and a temporary slowdown in the global economy as well as Japan's new year holiday came together and pushed down the trade balance," said Takeshi Minami of Norinchukin Research Institute.

Nuclear impact

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Imports are likely to remain high due to solid demand for imports of fuel for electricity and brisk imports of parts”

Yoshimasa MaruyamaItochu Economic Research Institute

The earthquake and tsunami on 11 March last year caused substantial damage to the Fukushima Daiichi nuclear plant, resulting in radiation leaks at the facility.

Some 80,000 people had to be evacuated from the surrounding areas. The leaks have raised concerns about the safety of nuclear energy in the country.

As a result the majority of Japan's nuclear plants have been shut and utility providers have had to turn to traditional thermal power stations to generate electricity.

These power plants need natural gas and coal to operate, resulting in a surge in imports of these commodities.

Imports of natural gas surged by 74% in January from a year earlier, while coal imports rose more the 26%, Japan's Ministry of Finance said.

Double whammy?

Japan's exports have been hurt by a strong yen, which has risen more than 7% against the US dollar since April last year.

A strong currency makes Japanese goods less attractive to foreign buyers as they have to pay more for them.

Analysts also say that a strong yen had resulted in Japanese firms sourcing more parts from outside Japan, which had resulted in increased imports and impacted the trade deficit.

They said this trend was likely to continue in the short term.

"Imports are likely to remain high due to solid demand for imports of fuel for electricity and brisk imports of parts," said Yoshimasa Maruyama of Itochu Economic Research Institute.

"Taking these factors together, a trade deficit will persist at least through the first half of this year, and how it narrows will largely depend on the recovery of overseas economies such as those in emerging markets in Asia."