With every data
point, I become more convinced the Global Recession is Upon Us.
Here is another data point to add to the list. Bloomberg reports Japan’s Current-Account
Surplus Shrinks 63% As Machine Orders Drop.
current-account surplus was the smallest in May since at least 1985 and
machinery orders fell the most in more than five years, adding to signs a
slump in demand is threatening the nation’s rebound.
The excess in the widest measure of the nation’s trade shrank 63
percent from a year earlier to 215.1 billion yen ($2.7 billion), the Ministry
of Finance said in Tokyo today.
Machinery orders, an indicator of capital spending, fell 14.8 percent in May
from the previous month, the Cabinet Office said, the biggest drop since
comparable data were made available in 2005.
For those unfamiliar with the term Current Account Wikipedia offers this
In economics, the
current account is one of the two primary components of the balance of
payments, the other being capital account. It is the sum of the balance of
trade (net earnings on exports minus payments for imports), factor income (earnings
on foreign investments minus payments made to foreign investors) and cash
The current account balance is one of two major measures of the nature of a
country's foreign trade (the other being the net capital outflow). A current
account surplus increases a country's net foreign assets by the corresponding
amount, and a current account deficit does the reverse. Both government and
private payments are included in the calculation. It is called the current
account because goods and services are generally consumed in the current
The balance of trade is the difference between a nation's exports of goods
and services and its imports of goods and services, if all financial
transfers, investments and other components are ignored. A nation is said to
have a trade deficit if it is importing more than it exports.
Positive net sales abroad generally contributes to a
current account surplus; negative net sales abroad generally contributes to a
current account deficit. Because exports generate positive net sales, and
because the trade balance is typically the largest component of the current
account, a current account surplus is usually associated with positive net
exports. This however is not always the case with secluded economies such as
that of Australia featuring an income deficit larger than its trade surplus.
Why This Is Important
Japan's balance of trade is already negative, but the important point is the
overall current-account of which trade is a part.
If Japan's current-account was negative, Japan would depend on foreign
capital to make up the deficit. Will foreigners fund Japan at 0% interest
I think not.
Bug In Search of Window
Japan has debt-to-GDP ratio of 220% and rising. As of July 9, the Yield on 10-year Japanese
Bonds is .80%.
A mere rise of 2 percentage points would consume all Japanese revenues just
to pay interest on the national debt.
Moreover, Japan's demographics are such that pension plans are now, for the
first time as of last year, net sellers of bonds, not net buyers. For
details, please see World's Largest Pension Fund
Needs to Sell Japanese Bonds; Japan's Demographic Time Bomb Officially Goes
As John Mauldin commented in his book Endgame, "Japan is like
a bug in search of a window." If you have not yet picked up a copy,
please do so. It's a good read.
Once Japan's current account balance goes negative in a sustained way (and I
believe that will indeed happen), the bug will have found the window.