Balance of Payment Japan

Japan's current account surplus saw a modest reduction in May due to Japan's stronger appetite for foreign business services.

Published monthly by the Ministry of Finance. Updated till the month of May 2017 (published on July 10th, 2017).

Recent data trend:

Japan's current account surplus shrunk from 1807 billion yen in April to 1401 billion yen in May after a seasonal adjustment. The decline is largely due to the deterioration in the service account balance that turned from a surplus of 75 billion in April to a deficit of 194 billion yen in May. The robust inbound tourism into Japan is helping to improve Japan's service account balance, but other components of the service account, such as Japan's usage of overseas business services, seem to have led to the deterioration.   

Japan's primary income surplus, the net receipt from Japan's overseas investment, has also shrunk from 1595 billion in April to 1472 billion in May. Japan's trade surplus remained virtually unchanged, from 262 billion yen in April to 269 billion yen in May. 

With the Trump administration's preoccupation with bilateral trade relationship, Japan's sizable current account surplus remains a liability for Japan. However, Japan's trade surplus accounts for only 19% of the overall current account surplus. The bulk of Japan's surplus nowadays come from its income account surplus, a result of the fact that Japan receives far larger income from its overseas investments than than the income foreigners receive from their investments in Japan.

As Japan's foreign direct investment (FDI) abroad is 5 times bigger than foreigners' FDI in Japan, and interests rates much lower in Japan than in abroad, Japan's large income balance surplus is unlikely to change for some time. While it is possible for Japan and US to try to chip away small fractions of Japan's current account surplus by importing more goods and services from US, no amount of policy measures are likely to alter the size of Japan's current account surplus in any substantial way unless interest rates in Japan start to rise or commodity prices start to rise as it did in 2013-2014. 

Brief overview of “Balance of payment”:
 
Balance of payment statistics makes an account for all the flow of funds across Japan’s border. In these statistics, financial flows are divided into two large categories. One category is called capital and financial account. Financial transactions that lead to transfers of assets/liabilities are included in the capital and financial account. The other category, known as current account, includes other transactions such as trades of goods and services, payment of interest and dividends and transfers such as international aids.
 
Japan has consistently recorded a surplus in its current account since 1981. The surplus consisted mostly of trade account surplus until mid 2000s. In recent years, the income account surplus has increasingly become a dominant source of the surplus, while Japan’s trade surplus diminished, even falling to a deficit between 2011 to 2015. While the fall in energy prices helped return the trade balance back to surplus in 2016, it is uncertain if the trade surplus would persist. 

Balance of Payment (Annual data, 1970-2016)

Note: The Japanese government publishes its Balance of Payment (BoP) statistics following BPM6 (Balance of Payments and International Investment Position Manual, 6th edition) going back to 1996. The BoP statistics we (JMA) show here for 1985-1995 are based on BPM5. The YoY change and YoY% growth we show here for 1996 is also based on BPM5, as the BPM6-based BoP statistics is available for 1996, but not for 1995. For 1970-85 the Japanese government has published the Balance of Payment Statistic in the USD denomination. We have converted it to Japanese Yen using average USD/JPY exchange rate for each year, except for 1970-72 for which we used end of the year USD/JPY exchange rates. 

Source: MoF, JMA

The Next Release Date: August 8th, 2017.

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