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Wednesday, January 25, 2012

Japanese annual trade deficit reflects industrial strategy reversal

Japan's energy and industrial policy that has been in place since the oil crisis of the early 1970's has been overturned.

Reuters reports today that Japan's first trade deficit since 1980 raises debt doubts:

"Japan runs trade deficit of $32 bln in 2011
Dec exports -8.0 pct yr/yr, imports +8.1 pct"

A key is the problem of increased reliance on fuel imports due to the loss of nuclear power. Only four of the country's 54 nuclear power reactors are operating.

To make up the energy gap, Japan increased fossil fuel imports 25.2%, almost one third of Japan's total overseas spending. Imports of oil, gas and coal all increased. Alternatives to fossil fuel will take years, if not decades to implement. These facts suggest that Japanese demand will add significant support to global hydrocarbon prices.

Another issue is offshoring; Businessweek reports that:

"Manufacturers from Panasonic and Honda to Sony Corp. and Toyota Motor Corp., which helped fuel three decades of trade surpluses, are moving output overseas as the yen trades near a postwar high, making exports less profitable."

A declining population also provides incentive for offshoring simply to find workers to staff manufacturing operations. Moving the work offshore also avoids cultural complications from the possible alternative strategy of allowing foreign workers to immigrate.