Japan's surplus soars, inflation remains unresolved

Japan is currently facing a "fire and ice" economic scenario: on one hand, its balance of payments has reached a historic high, indicating increased international competitiveness; on the other, domestic inflation continues to erode livelihoods, reflecting that economic recovery is still hindered by deep structural constraints.

Record High in Current Account Surplus, Yen Depreciation Boosts Overseas Income

According to the latest data released by Japan's Ministry of Finance on May 12, the current account surplus for fiscal year 2024 reached 30.38 trillion yen (approximately 1.5 trillion RMB), an increase of 16.1% year-on-year, marking the highest level since 1985 and setting a new record for the second consecutive year.

The core driver of this surplus growth is the "primary income balance"—profits inflow from overseas investments. This segment's surplus increased by 11.7% year-on-year to 41.71 trillion yen, a historic high. The key factor behind this is the exchange rate advantage from yen depreciation, significantly increasing dividends and interest income of overseas subsidiaries of Japanese financial institutions, thus strengthening the overall balance of payments.

Exports Exceed 100 Trillion Yen, Service Deficit Narrows

Although the trade balance still showed a deficit totaling 4.05 trillion yen, a 9.8% increase from the previous year, notably, total exports surpassed the 100 trillion yen mark for the first time, reaching 106.24 trillion yen, an increase of 4.1%. High-value-added products like semiconductor manufacturing equipment performed outstandingly. Meanwhile, driven by growing demand for computers, imports also rose by 4.3% year-on-year to 110.29 trillion yen.

In terms of services, the deficit narrowed to 2.58 trillion yen, a decrease of 20.2% year-on-year. Spending by inbound tourists significantly boosted the travel account surplus, effectively offsetting the pressure from increased digital service imports.

In March 2025, the monthly current account surplus rose by 6.7% year-on-year to 3.68 trillion yen, indicating the trend continues.

Domestic Inflation Pressure Persists, Food Prices Remain High

However, contrasting the international economic highlights, domestic inflation pressure continues to affect the lives of residents. Data released by the Ministry of Agriculture on the same day shows that early May supermarket rice prices slightly decreased month-on-month to 4,214 yen/5 kg, a drop of 19 yen from the previous period, marking the first decline in 18 weeks, yet still double the price from the same period last year.

To mitigate food inflation pressure, the Kishida government has been releasing strategic rice reserves since March to stabilize market prices, with the measure expected to continue until July. Although initial effects have been seen, the persistently high prices reflect the unresolved real plight at the livelihood level.

Analysis: Structural Challenges Constraining Japan's Economic Recovery

Overall, Japan's strong external account performance partially reflects the short-term benefits brought by yen depreciation, but weak domestic demand, rising living costs, and intensifying inflation pressures still highlight the deep structural bottlenecks in the recovery process.

Experts point out that if the government cannot balance reducing living costs with maintaining export competitiveness, Japan's economy may struggle between an "external surplus and internal discomfort" in the long term.

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