Japan’s BOPs have changed dramatically

Japan's balance of payments situation has been dramatically altered by both the Sendai earthquake andthe rise of Abenomics. 

The loss of productive capital stock, particularly in the energy sphere, was the key influence of Sendai. The spectacular turnaround in USD/JPY was the key contribution of Abenomics, which hugely inflated the import bill, just as a large volume of fossil fuels were required to replace the nuclear shutdown. 

The result was that Japan's annual current account surplus declined from ¥19.1 trillion in calendar 2010 to just ¥2.6 trillion in 2014. 

Where the balance of goods is concerned, the turnaround has been staggering: from +¥9.5 trillion in 2010 to -¥10.4 trillion in 2014. 

The goods import bill rose by 54% over that time period, against a rise in nominal GDP of 1.2%. Export earnings on goods are up by around 15% over that time frame, about the same as the figure for world trade.

Westpac notes in a report on Tuesday:

• The changing nature of the balance of payments, which have been relatively slow to heal despite thedecline in commodity prices in the second half of 2014, has shined a light on the rate of return on thestock of Japan's assets versus its liabilities.
  
  
• The yield on Japan's total stock of international assets of around ¥800 trillion was around 2¾% in calendar 2013. 
  
  
• That is not terrible, but it is not tremendous either. Germany, another large international creditor, made a little over 3% on a €7 trillion base. 
  
  
• Given that gap, it is interesting to note that direct investment is about 15% of Japan's international assets; 9% is in portfolio equity and 36% is in portfolio debt, 14% in loans, 3% in deposits and 17% in reserves. The equivalent figures for Germany are 22%; 4%; 22%; 8%; 24% and 2%.