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. Last Updated: 07/27/2016

Japan's Trade Surplus Falls 45 Percent

TOKYO -- Japan's contentious trade surplus plummeted by almost half in April on surging imports and sluggish exports, reflecting structural changes in the nation's economy.

Official data released Monday showed that the surplus in the current account -- the broadest measure of Japan's trade in goods and services -- plunged by around 45 percent in April from a year earlier to 555.2 billion yen ($5.09 billion).

The surplus in merchandise trade, a narrower measure, shrank to virtually half the size it was a year earlier. The merchandise trade surplus for April fell just under 49 percent to 559.1 billion yen ($5.12 billion), according to the Finance Ministry data.

Economists said the latest big adjustment in the trade imbalance reflected Japan's continuing shift away from an export-led economy to one with more open markets and greater offshore production. But they said the rate of shrinkage in the surplus may start to slow.

The changes have allowed imports to make greater inroads into Japanese markets, while the shrinking domestic production base has slowed the pace at which exports are growing. Goods made overseas by cost-conscious Japanese companies but sold in Japan show up in the balance as imports.

"There has been a shift in production overseas and at the same time we have a huge inflow of foreign goods from Asian countries and the United States," said Masaru Takagi, chief economist at Fuji Research Institute. Imports grew by more than 40 percent while export growth remained comparatively slow at just over 10 percent.

But economists say the recent dramatic decline in the trade surpluses may not be sustained. "The pace of trade adjustment will continue to slow as the 25 percent depreciation in the yen begins to kick in. You won't be seeing this much decline in the external surplus in three to six months' time," said Russell Jones, chief economist at Lehman Brothers Japan.

The yen, trading for most of this year in a range of 100 to 110 to the dollar, has fallen considerably from its highs of last year, making overseas goods more costly to import. In April last year, the dollar hit a post-war global low of 79.75 yen.

The U.S. economy was also expected to pick up, helping exports, economists said.

"A lift in the overseas economies, mainly the U.S., will help exports come back. Although exports of finished cars, for example, are not expected to rise, exports of intermediate goods [and] parts will," said Kyohei Morita, economist at Nomura Research Institute.

Morita also said the shrinking surplus in trade and a wider deficit in services -- partly reflecting a high number of Japanese travelling abroad -- meant that the overall surplus in trade and services would tend to turn out small.

"The trade surplus could fall to five or six trillion yen this fiscal year. The services deficit is also widening, maybe to about four trillion yen. Thus the goods and services balance is coming to a stage where goods and services are almost cancelling each other out," he said.

Instead, much of the current account surplus would come from the other component of the current account, investment income. "The income surplus, mainly because of a rise in investment income, is expected to increase," said Morita, adding that increases in direct investment abroad by Japanese firms would mean greater returns.

Higher dividend returns from stock purchases in overseas companies, in particular, could be expected, he said.