Japan's current account surplus fall

Japan's current account surplus shrank 42.4 percent from a year earlier in July, government data showed Thursday, the fifth consecutive decline in the wake of the March 11 earthquake and tsunami. Separate data showed a decline in machinery orders in July, an indication that corporate capital spending was being deterred as a strong yen makes firms less profitable, amid concerns of a global slowdown, said analysts. "Japanese firms' sentiment is becoming more cautious about capital investment compared to their attitude before and immediately after the March disaster," said Hidehiko Fujii, chief economist at Japan Research Institute. The more-severe-than-expected narrowing of the surplus came as exports shrank 2.3 percent. Japanese companies are working to restore post-quake production levels but there are concerns a strong yen could undermine their recovery. Imports surged 13.6 percent, partly due to higher oil prices, with Japan forced to boost fossil fuel consumption to compensate for the shutdown of most of its reactors after the Fukushima nuclear disaster. "The growth in fuel imports due to the greater reliance on thermal power plants was a big factor in the higher import figure," a Ministry of Finance official told reporters. Another factor behind the lower surplus was a 306.2 billion yen ($3.96 billion) deficit in the services trade balance, which fell as the number of foreign visitors to Japan has plunged in the wake of the disasters. The surplus in the current account, the broadest measure of Japan's trade with the rest of the world, stood at 990.2 billion yen in July before seasonal adjustment, finance ministry data showed. The result was worse than expectations of a 31.8 percent year-on-year fall according to a survey of economists by Dow Jones Newswires and the Nikkei business daily. While the data missed expectations, the rate of decline slowed from 50.2 percent in June, 51.7 percent in May and 69.5 percent in April. The current account measures trade in goods, services, tourism and investment. The March disasters left 20,000 dead or missing, destroyed entire towns along Japan's northeastern coast and triggered the world's worst nuclear disaster since Chernobyl 25 years ago. The damage and devastation brought by the tsunami also shattered crucial component supply chains, forcing companies to shut down factories, slowing the nation's output and exports as the economy tipped into recession. While Japan's producers have raced to restore output more quickly than expected, there are concerns that effort could be undermined by a strong yen that erodes repatriated profits, as demand wanes amid a global economic slowdown. Evidence of this impact could be seen in data showing Japan's core private-sector machinery orders, a leading indicator of corporate capital spending, fell 8.2 percent in July from the previous month, after rising 7.7 percent in June. The core data, which exclude volatile demand from power companies and for ships, showed a decline that was steeper than forecasts of a 4.0 percent fall. Analysts said the fall came as a strong yen threatened the profitability of exporters and deterred companies from making investments amid concerns over a global slowdown and falling demand. In August, the yen hit a post-war high against the dollar despite Japan's efforts to intervene in currency markets to weaken it. Japan is expected to sharply revise down its second quarter gross domestic product reading on Friday from a preliminary 1.3 percent shrinkage on likely weaker-than-forecast capital investment due to the March quake.