Commentary: Japan's surplus unchecked

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The Independent Online
Trying to explain away Japan's trade surplus is like trying to square the circle. No matter what ingenious variations on exchange rate fluctuations, lower costs for imported oil and other red herrings Japan's Ministry of Finance bureaucrats can dream up, in the end it does not shape up. Last year Japan exported a record dollars 133bn ( pounds 94bn) more than it imported, according to balance of payments figures, with no signs of an easing of the imbalance.

Figures out this week showed a further 40 per cent jump for the surplus in January - larger than expected - with the Prime Minister, Kiichi Miyazawa, saying he was 'totally perplexed' by the rising surplus, which has further upset people in the US, Europe and Asia, all of whom suffer chronic deficits with Japan and continue to find the Japanese market difficult and expensive to penetrate.

In the short term, the only way to reduce the surplus is for Japan's domestic demand to pick up and suck in more imports. The US and the EC have recently urged Japan to do more to stimulate its economy. Jean-Pierre Leng, the EC's ambassador to Tokyo, called the surplus a 'time bomb' and pointed out that, with 10 per cent unemployment in Europe, it would be difficult to explain why Japan, with 2 per cent unemployment and 2 per cent inflation, needed continually to rack up such huge surpluses.

For overseas consumption Japanese politicians say they are committed to achieving 3.3 per cent growth this coming fiscal year. No economists believe this is remotely possible under the current budgetary plans, and say income tax cuts and more public spending will be necessary.

Meanwhile Yoshiro Hayashi, the Finance Minister, said he was ready for 'frank discussions' on the surplus but admitted he had no plans on ways to cut it. During a visit to Washington last week he squashed talk of a managed appreciation of the yen against the dollar.

For the time being, Tokyo is holding its breath to see what direction President Bill Clinton will take in trade policy. Senior officials have said Japan would retaliate if Washington imposed unfair tariffs on Japanese goods.

But beyond that there is little creative thinking on restoring some balance to trade flows from the world's second-largest economy.

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