By: Dr. Mike Campbell

Japan is the world’s third largest economy behind the USA and China. Japanese prosperity has been driven by demand for its goods, notably electronics and vehicles, in importing countries. Such has been Japan’s prowess as an exporting nation that it has managed to produce a trade surplus for the last thirty years. However, figures just released by the finance ministry have shown that Japan’s balance of payments for 2011 has slipped into a deficit of $32 billion.

Japan’s exports fell by 2.7% in 2011 compared to the 2010 figure whilst imports rose by 12%. The reasons underlying this reversal of fortune are easily identified. The devastating earthquake and tsunami that Japan suffered last March led to almost all of her nuclear powered electricity generation capacity being taken off-line. This meant that production was further disrupted by power shortages and fossil fuel imports had to be increased to meet the demands of conventional power stations. Before the natural disaster, nuclear power provided approximately 30% of Japan’s electrical energy. The change in power generation has led to crude oil imports rising by 21.3% and liquefied natural gas imports rising by 39.5%. Petrochemical (refined) imports were also up by nearly 40% over the 2010 level. The disaster also badly disrupted Japan’s infrastructure and the components supply chain to manufacturers.

Pressure has been put on Japan’s exports by the high value of the Yen which has been seen as a safe-haven currency in these tricky economic times. The US Dollar fell by 7% against the Yen in 2011 and has slumped by 16.2% since January 2010. And if that wasn’t enough, the world’s recovery, such as it is, stuttered in 2011 which meant that demand for Japanese goods in importing markets weakened.