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Originally published Wednesday, April 17, 2013 at 6:03 PM

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Japan deficit swells, ships more to US than China

Japan's trade deficit ballooned to a record $83.4 billion in the last fiscal year as a surge in exports to the U.S. failed to offset the impact from territorial tensions with China and weak demand from crisis-stricken Europe.

AP Business Writer

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Japan's trade deficit ballooned to a record $83.4 billion in the last fiscal year as a surge in exports to the U.S. failed to offset the impact from territorial tensions with China and weak demand from crisis-stricken Europe.

The customs figures released Thursday showed the U.S. edging ahead of China as Japan's largest export market as America-bound exports jumped 10.4 percent from a year earlier to 11.4 trillion yen ($116.3 billion). Exports to China, a major export destination due to its status as Japan's biggest offshore manufacturing base, plunged 9.1 percent to 11.3 trillion yen ($115.7 billion).

China first supplanted the U.S. as Japan's biggest export market in 2009, when demand sagged in the aftermath of the global financial crisis.

As then, exports of vehicles and machinery are playing the largest role in the shift in trade. Japan's exports of transport equipment, including vehicles and parts, to the U.S. jumped 17 percent last fiscal year, while shipments of machinery and electrical equipment rose 24 percent and 15 percent, respectively.

Despite an overall 14 percent decline in exports to the European Union, Japan's exports of machinery and transport equipment to that region also surged by double-digit figures.

But exports of vehicles to China plummeted 26 percent, while machinery exports dropped 22 percent and those of manufactured goods fell 10 percent.

A flare-up in tensions over islands in the East China Sea claimed by both countries sparked sometimes violent anti-Japanese protests last year that damaged Japanese businesses and hammered demand for Japan-brand products. Months later, the dispute remains unresolved but the economic impact of the antagonisms has eased.

Whether the renewed U.S. status as Japan's biggest export market will persist remains unclear. In March, exports to China fell 2.5 percent from a year earlier but at 1.11 trillion yen ($11.2 billion) they outpaced exports to the U.S. at 1.1 trillion yen.

Overall, Japan posted its ninth straight monthly trade deficit in March, at 362.4 billion yen ($3.7 billion). But that was down from February's gap of 779.5 billion yen thanks to a slight recovery in exports, which rose 1.1 percent year-on-year to 6.27 trillion yen ($64 billion). Imports climbed 5.5 percent to 6.63 trillion yen ($67.7 billion).

Exports fell 2.1 percent in the April-March fiscal year from the year before, to 63.9 trillion yen ($652.4 billion) while imports rose 3.4 percent to 72.1 trillion yen ($735.8 billion). The deficit of 8.17 trillion yen ($83.4 billion) was up 84 percent from the previous fiscal year's 4.4 trillion yen ($45.1 billion) shortfall.

A sharp depreciation in Japan's currency since late 2012 has failed to fully offset weak demand for Japan's exports.

The weaker yen means higher costs for rising imports of natural gas, which is sold in U.S. dollar terms, to help compensate for the loss of nuclear power generation capacity. Most atomic power plants remain closed due to the 2011 disaster at the Fukushima Dai-ichi nuclear plant in northeastern Japan.

Imports of fuel, which account for over a third of Japan's total imports, rose 6.6 percent. That included a 15 percent jump in the value of imports of liquefied natural gas and 5.3 percent for crude oil. That trend has pushed the trade balance into the red, though the inflows of earnings from the massive overseas investments of Japanese corporations have ensured that Japan's current account remains positive.

Japanese manufacturers have been stepping up investments in Southeast Asia, hoping to hedge risks from Japan's extensive operations in mainland China and to tap the faster growth in emerging Asian markets.

That helped exports to Thailand, Indonesia and Vietnam expand at a double-digit pace in the last fiscal year, the customs data show, though exports to the entire Southeast Asian region rose a more modest 4.2 percent.

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