Japan recorded its first current account deficit in nearly 17 months in June, according to data reported by the Japanese Finance Ministry on Monday.
The June deficit stood at 92.3 billion yen ($584.51 million), falling short of economists' expectations for a 1.51 trillion yen surplus. This marks a shift from June of the previous year, when Japan recorded a current account surplus of 1.28 trillion yen.
Japan's June current account deficit
The deficit was driven in part by increased dividend payments made by Japanese companies to foreign investors, following an increase in the weight of foreign investors in Japanese markets. Additionally, surging oil import costs contributed to a trade deficit in June, which helped push the current account into deficit.
Japan's trade balance for June showed a deficit of 135.2 billion yen. During the month, exports rose 16.3% year-on-year, while imports rose 24.3% year-on-year.
On a seasonally adjusted basis, however, Japan's current account remained a surplus of 1.40 trillion yen in June.
Primary income and first-half records
Reports indicated that Japan's primary income balance from direct and portfolio investment fell to approximately 380 billion yen in June, representing a decline of about 74% year-on-year. Some sources cite a 73.7% decline.
Despite the June deficit, Japan's current account surplus for the first half of the year rose 22.5% to a record 17.4 trillion yen, a trend driven by strong semiconductor exports for AI data centers.
Monetary policy and currency volatility
The Bank of Japan (BOJ) kept its policy rate at 1% during its July 30-31 meeting, following a June increase to the highest level in 31 years. A summary of the July meeting indicated that at least three of the nine board members suggested rate hikes could occur faster than the current pace. One board member voted to raise the rate to 1.25% during the July meeting.
According to the BOJ meeting summary, board members cited the weak yen, high oil prices, and strong AI demand as factors that could drive inflation higher. The possibility of another rate hike at the September meeting has strengthened.
The yen reached a 40-year low in July as the dollar/yen rate approached 164. A coordinated intervention by the US and Japan caused the yen to appreciate by approximately 5%, much of those gains were subsequently reversed. As of Monday morning, the dollar/yen rate traded above 158.
A weak yen is not a positive development for companies under all circumstances.
The weak currency has increased import costs for oil, natural gas, food, and industrial raw materials. In response to market conditions, Mitsubishi Corp is preparing to reassess its financial plan assumption of 150 yen per dollar.
On Monday, the Nikkei 225 rose about 2%. This optimism followed weak US employment data released on Friday, which reduced expectations for Federal Reserve rate hikes in September, lifting Wall Street to record levels.
