The shift in Japan’s trade structure means that a weaker yen’s positive impact on exports has diminished, while its negative effects on imports and overall trade and current balance have become amplified.
Energy analysts say an additional 3 trillion yen ($36.9 billion) in annual fuel imports will be needed if Japan fails to restart its reactors.
That could tip the current account into deficit in just over three years if the yen stays around current levels of around 82 to the dollar, according to Kumano’s estimates.
If it were to slip to around 90, that moment could be brought forward by several months, sooner than in most forecasts which are centred around 2015-2016.
The share of fuel imports — priced in US dollars, so sensitive to currency rates — has risen to 27 per cent last year from a fifth a few years ago, and is seen climbing further to about a third.
On the other hand, the share of Asian markets as export destinations where settlement in yen is common has risen steadily in the past decades, weakening the currency effect. Today, more than half of Japan’s exports go to Asia and 15 per cent to North America where deals are settled in dollars, compared to about a third to Asia and 28 per cent to North America in 1992.
The continued shifting of production to lower cost overseas locations such as Thailand by Japanese manufacturers has also dampened the yen effect, despite a chorus of complaints from the industry when the currency was scaling record highs in 2011 and early this year.
“There are questions about whether exports will really grow now just because of yen weakness,” said Kazuyoshi Nakata, an economist at Mitsubishi UFJ Research and Consulting.
The yen has retreated 4 per cent against the dollar since the Bank of Japan surprised markets in mid-February with larger-than-anticipated monetary easing. It has also weakened in part as Europe made progress in containing its debt crisis, reducing the yen’s appeal as a safe haven for investors.
Given forecasts that world oil and gas prices will continue to climb and Japan’s demand for fuels will remain strong, analysts say a weaker yen may only deepen its trade deficit.
Under the scenario where none of Japan’s 54 nuclear reactors will be online after May, its demand for LNG would rise as much as 12 per cent this year to 88 million tonnes, analysts say.
A further rise in fuel prices, a likely scenario given tensions over Iran’s nuclear programme and a US-led embargo on its oil exports, would add to that burden.
Bob Takai, general manager of Sumitomo Corp’s energy division estimated that a climb in oil prices to $150 a barrel from $125 would drive up LNG prices by around 20 per cent and boost Japan’s import bill by a similar margin.
Economists say seasonal factors and a hit to exports from Chinese Lunar New Year holiday pushed Japan’s current account, a broad measure of trade, income and other flows, into a record deficit in January.
However, there is little doubt that big trade and current account surpluses are a thing of the past. Last year, Japan logged a 2.5 trillion yen trade deficit, its first since 1980.
That shortfall would have been higher if not for a 9 per cent rise in the yen against the dollar. Its direct impact on imports contrasts with less obvious effects on exports, driven also by overall conditions in the world economy.
Exports dipped 1.9 per cent last year, but plunged by a third in 2009 when the yen rose by a similar margin, and fell only 3 per cent in 2008 when the yen strengthened by around 12 per cent. Exports grew 5 per cent in 2003 despite the yen’s 7 per cent rise.
“The trade balance impact from rising fuel import costs is larger than the impact of a weaker yen on exporters,” Takai said.
Long preoccupied with the strength of the yen and its drag on the anemic economy, policymakers in Tokyo are now being served a warning about the risks posed by the currency’s retreat.
The yen’s decline from record highs in recent months coincides with a major shift in the country’s energy balance, a change that threatens to hasten its path to a perennial trade deficit.