FinancialAdvisor's College Class (FACC)

[FinancialAdvisor]

Japan's Current Account Surplus Unexpectedly Falls (Update6)

Japan's Current Account Surplus Unexpectedly Falls (Update6)

May 16 (Bloomberg) -- Japan's current account surplus unexpectedly shrank in March to its lowest level in more than a year as higher prices of oil and iron ore raised the value of imported goods, sapping economic growth.

The surplus fell 17.5 percent to 1.37 trillion yen ($13 billion), seasonally adjusted, from February, the Ministry of Finance said today in Tokyo. The median forecast in a Bloomberg News survey of 10 economists was for a surplus of 1.68 trillion yen.

Manufacturers including Matsushita Electric Industrial Co., the world's biggest consumer electronics maker, are being squeezed by rising costs of raw materials and falling prices of goods such as flat-panel display screens. A separate government report today showed that producer prices rose at the fastest pace in four months in April, led by gains in oil and chemicals.

``There is a risk that companies are hit by a sharp increase in commodity prices that they are unable to pass on to customers,'' said Naoki Iizuka, chief economist at Dai-Ichi Life Research Institute, a unit of Japan's second-largest insurer by assets. ``That would hurt the wider economy and prompt talk of a recession.''

The current account surplus may fall further as overseas buyers reduce inventories of unsold goods, curbing Japan's economic expansion and leaving the nation dependent on consumers for growth. Exports and capital spending together accounted for more than two-thirds of Japan's growth last year.

``The slowdown in exports confirmed the weakness we're seeing in overseas demand, particularly from Europe and Asia,'' said Masaaki Suzuki, an economist at Mizuho Research Institute who predicted a decline in the surplus. ``Exports aren't going to be able to contribute to growth until overseas demand recovers later this year.''

Growth Outlook

Imports in March rose 4.7 percent to 3.9 trillion yen, seasonably adjusted, from a month earlier. Exports rose 2.8 percent to 4.94 trillion yen, the finance ministry said.

Japan's economic growth probably accelerated to a 2.5 percent pace in the first quarter as consumer spending rebounded, according to the median forecast of 26 economists surveyed by Bloomberg News. Net exports, the difference between exports and imports, probably didn't contribute to growth, they said. The government report is due at 8:50 a.m. tomorrow.

Japan's producer prices rose 1.8 percent in April, the fastest pace since December and the 14th consecutive increase, a separate report from the Bank of Japan showed today.

Oil on the New York Mercantile Exchange averaged $54.50 a barrel in March, compared with $48.06 in February. Oil rose to $58.28 on April 4, the highest since trading began in 1983, and averaged $53.32 a barrel for the month. Japan imports nearly all its oil, nine-tenths of it from the Middle East.

Prices Fall

The International Monetary Fund, which on April 16 declared higher oil prices a threat to global economic growth, estimates oil prices will average $51.90 for the year. The outlook compares with a forecast released last September for $37.30 and a March prediction of $46.50.

Japan fell into recession in the second quarter of 2004 as export growth slowed. The economy recovered in the fourth quarter, expanding at a 0.5 percent pace.

Japan's seasonally adjusted current account surplus in March was the lowest since December 2003. For the year to March 31, the current account rose 5.8 percent to a record 18.29 trillion yen, from the previous fiscal year.

Companies including Osaka-based Matsushita say prices of DVD recorders and flat-panel televisions are falling as global production capacity expands.

Investment Income

Matsushita widened its quarterly loss to 33.2 billion yen in the three months ended March 31, from 5.25 billion yen a year earlier. Operating profit at the company's home appliance unit will drop 3 percent to 77.6 billion yen this year, the company said.

The yen was at 107.63 to the dollar at 2:03 p.m. in Tokyo, from 107.32 late on May 13 in New York.

Seasonally adjusted income from overseas investments fell to 775 billion yen in March, from 903.6 billion yen a month earlier, the ministry said. Japanese investors owned $701.6 billion of U.S. Treasury notes at the start of the year, according to Bloomberg data.

Income from overseas investments last fiscal year rose to its highest level ever, increasing 14 percent to 9.73 trillion yen from the twelve-month period, exceeding the nation's surplus in trade and services by 210 billion yen.

U.S. Federal Reserve policy makers raised the benchmark interest rate a quarter-point to 3 percent on May 3, the eighth increase in as many meetings.

To contact the reporter on this story:
Tim Kelly in Tokyo at [e-mail]


LINK: http://quote.bloomberg.com/apps/news?pid=10000080&sid=ag2UQiIEzBf4&refer=news_index