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Japan’s trade deficit narrows in May as energy imports fall BoJ now Tokyo’s biggest creditor

TOKYO, June 18, (AFP): Japan’s trade deficit narrowed in May as imports turned down for the first time in a year and a half, data showed Wednesday, but weaker shipments abroad helped keep the trade balance in the red. The figures — which suggested the world’s number three economy was slowing — reflected a fall-off in spending after sales taxes rose in April, a move seen as crucial to paying down a huge national debt but one that threatened to stall the nation’s budding economic recovery. The trade deficit has ballooned since the 2011 Fukushima atomic crisis forced the shutdown of nuclear reactors and a shift to pricey fossil-fuel imports to plug the energy gap. Nuclear once supplied more than a quarter of Japan’s power.

On Wednesday, the finance ministry said Japan’s May trade deficit narrowed 8.3 percent from a year ago to 909 billion yen ($8.9 billion), marking the 23rd consecutive monthly shortfall. Imports were down 3.6 percent to 6.5 trillion yen, the first on-year drop in 19 months as crude oil shipments fell by nearly 20 percent in volume terms. Domestic demand for gasoline and other products jumped in the months ahead of the consumption tax rising to 8.0 percent from 5.0 percent, as millions of shoppers dashed to stores before prices went up. May exports fell 2.7 percent to 5.6 trillion yen, the first downturn in over a year as demand for refined fuel and vehicles fell overseas.

Wednesday’s data were the first major economic figures published since the Bank of Japan wrapped up a two-day policy meeting last week with policymakers holding fire on an expansion of the BoJ’s stimulus programme. Japanese central bankers have held steady since launching their huge monetary easing blitz in April last year as they gauge the impact of the sales tax hike. On Friday, the BoJ acknowledged that consumer demand and factory output had taken a hit, but insisted that the economy was seeing a “moderate recovery”.

Overseas economies, particularly in major industrialised nations, were also recovering “albeit with a lacklustre performance still seen in part”, it said. The weak exports in May, however, were likely to raise further questions about the strength of demand. Japan’s second-quarter economic growth is expected to come in weaker than the 1.6 percent expansion between January and March as the pre-tax spending rush gives way to caution among ordinary Japanese who face higher prices and creeping inflation. Meanwhile, the Bank of Japan (BoJ) has become the single biggest holder of domestic government bonds for the first time, data showed Wednesday, underscoring the scale of its monetary easing programme. The central bank has been aggressively buying Japanese government bonds (JGBs) since unveiling a stimulus scheme in April 2013 as part of Tokyo’s wider bid to kickstart the world’s number three economy.

Data supplied by the central bank on Wednesday showed it had edged out the insurance sector to hold 201 trillion yen ($1.97 trillion) in JGBs, or 20.1 percent of the total, at the end of March. Insurers collectively held 19.3 percent of Japan’s outstanding debt. Pension funds and individuals were among the other holders of the country’s low-yielding government debt. The vast majority of the government’s debt is held domestically, which is why Japan has not faced the same kind of pressure from foreign creditors as Greece and other nations did at the height of the eurozone debt crisis two years ago.

But the International Monetary Fund has led calls for Japan to tame its public debt — one of the world’s heaviest burdens at more than twice the size of the economy. Tokyo is grappling with the spiralling healthcare and social security costs in a rapidly ageing nation. In a bid to boost Japan’s $1.26 trillion public pension fund — the world’s biggest — Tokyo is eyeing a shift away from a bond-heavy portfolio into stocks and other riskier assets in search of higher returns.

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