Japan’s balance of payments and GDP revision

The Japanese current account surplus in April (1.27 trillion yen on a seasonally adjusted basis) did not meet the expectations of the majority of analysts. The extremely high March result seems a one-off rather than signalling the return to the high surpluses of the past. That in itself is not the end of the world but illustrates that the recovery of the Japanese balance of payment is not a foregone conclusion. Further support in the shape of further yen weakness is required. On a trade-weighted basis the Japanese currency has eased by more than 3% since the end of April. The balance of payment data this morning therefore serves as a reminder that the recent yen weakness was justified as an argument for further depreciation. 

On the other hand the revision of the GDP data for Q1 is a positive factor for the yen. The Japanese economy grew by an impressive 1.0% during that time. A fact that caused some analysts to assume that the Bank of Japan (BoJ) might be able to lean back and relax. "Job done", some seem to think. Well, this is a conclusion only those can reach who are uncertain about the distribution of economic policy responsibilities. The Japanese central bank would only be able to fuel the economy very briefly with the means it has at its disposal. If at all that is the responsibility of the government. The BoJ has to deal with the rate of inflation, and that remains far too low. So the fact that inflation is still not rising (after 20 years of deflation fighting) - despite good growth levels - should be a further cause of concern for the BoJ, says Commerzbank.