Japan’s trade deficit in the last year is the first annual one since 1980. The country, known for its electronic exports, has registered a trade deficit of $32 billion in 2011. Immediate reason for the Asian giant’s unusual trade deficit is the large volume of oil imports that was necessitated after the quake-resulted nuclear energy crisis.

                Strong yen for most part of 2011 also contributed to the deficit. People have invested heavily in yen because of the Euro crisis. On the export front, factory output came down; supply chains for MNCs like Toyota and Sony have broken resulting in export loss.

                Japanese officials indicate that the deficit may be closed only by end 2014. The energy and related infrastructure sector has to be reconstructed. Similarly dependence on carbon emitting fossil fuel imports should come down.

                A favourable factor for the return to trade surplus is the potential weakening of the Yen. After the news of the deficit, the yen has lost some value against the dollar. This may make Japanese commodities cheaper in the international market. Japanese exports may make a comeback in the first two quarters of 2012, if disrupted supply chains are restored quickly.

                Another perception of the unusual trade deficit is also important. Over the last few years, Japan is facing high competition from the Chinese and Korean technology and electronic firms. The success of Samsung over Apple and that of Hyundai in third markets is a matter of concern for Japanese firms. Similarly, large number of Chinese medium scale firms are competing with Japanese firms in high value products. Japanese firms have outsourced high proportion of their products to flexible and quick supply chain centers in mainland China. The global shift of economic activity to China and Korea has also contributed to the trade deficit.

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