Soaring Costs Hit Japanese Economy

Wholesale prices grew at their fastest pace in nearly three decades.

Japan was hit by more bad economic news on Sept. 10 as rising energy costs shaved the current account surplus and wholesale prices grew at their fastest pace in nearly three decades.

With the cost of imports hitting a record high, the current account surplus fell 17.3% in July from a year ago to 1.53 trillion yen (US$14.29 billion), the finance ministry said.

Japan's wholesale prices shot up 7.2% in August from a year earlier, growing at the fastest pace in 27 years on higher energy costs, central bank figures showed.

"Exports are losing luster as the global economy deteriorates including in U.S. and Europe -- and not excluding Asia, which is showing signs it is flagging," Dai-Ichi Life Research Institute senior economist Toshihiro Nagahama said. "The weak trend of exports is set to continue with the world's economy expected to worsen even more. Japan's economic weakness is probably here to stay until at least the end of the current fiscal year."

The trade surplus fell 69.8% to 232.2 billion yen. Japan's exports rose 8.7% to 7.29 trillion yen, but imports jumped 18.9% to a record high 7.06 trillion yen.

The value of imports was inflated by the rising cost of energy in Japan, which has virtually no fossil fuel resources on its own. Crude oil imports rose 69.2% to 733.8 billion yen, coal imports more than doubled to 174.0 billion yen and liquid natural gas imports rose 59.3% to 155.0 billion yen.

The raw material prices have also triggered a spike in costs of merchandise for consumers -- prompting worries about inflation in an economy that for the past decade had instead been battling against deflation. .

The corporate goods price index dropped 0.1% in August from the previous month. Compared with the previous year, it was up 7.2%.

Hirokata Kusaba, senior economist at Mizuho Research Institute, warned of risks to Japan from the shrinking global appetite for its exports -- a key driver of the country's recovery from recession in the 1990s.

"Given the corporate sector's situation, salaries, too, are unlikely to rise and boost private spending, so the economy as a whole will continue to be weak," he said.

Copyright Agence France-Presse, 2008

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