What the Japanese Trade Deficit Says About the Fraying Fabric In China And Europe

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

European talking heads have been reassuring us on an hourly basis, lest we forget, that the worst of the debt crisis is over. But the Japanese trade deficit, a measure of reality, not words, tells a different story about the crisis in Europe. And about troubles coming to a boil in China. But neither issue can be resolved by Prime Minister Shinzo Abe’s plan to decapitate the yen.

Trade deficits aren’t the end of the world for Japan. But they’re the end of an era. Since the mid-1980s, Japan has booked large annual trade surpluses, to the total and ineffectual aggravation of US presidents and lawmakers. The surpluses helped fund Japan’s budget deficits without having to rely on foreign investors. Now, these deficits have become a mountain of debt over twice the size of GDP, unequalled in the developed world.

But in 2011, that seemingly endless string of surpluses, on which the Japanese economy had become dependent, broke. Instead there was a deficit of ¥2.56 trillion, small by US standards. It was ascribed to the earthquake and tsunami, fuel imports, etc. A temporary blip. In 2012, the monthly trade deficits got worse, and over the last six months, they occurred in an uninterrupted sequence to reach ¥6.93 trillion ($78 billion), almost tripling from 2011. An all-time record.

Yet, even during the campaign late last year, Shinzo Abe, now prime minister, vowed to toss all fiscal restraints overboard and pile even more deficit spending on that mountain of debt that had been funded by the now evaporated trade surpluses. So the cabinet just approved another round of stimulus spending, $117 billion, the largest since the financial crisis. It will be up to the Bank of Japan to print enough yen and mop up the red ink.

It’s Abe’s effort to goose the economy, or at least remain prime minister for longer than 15 months, which was the limit for his hapless six predecessors, including himself, ever since Junichiro Koizumi vacated the post in 2006 (graph). And it’s causing a ruckus around the world. Politicians and lobbyists are accusing Japan of yen manipulation and of starting the next round in the currency wars, forgetting conveniently that it was the Fed that has been trying with all its might and for years to demolish the dollar, and is still doing so by printing $85 billion a month [The Currency Wars: Now US Automakers Are Squealing].

But Abe’s gyrations had no impact on the trade deficit in December. At ¥641.5 billion, it was once again worse “than expected.” Exports deteriorated 5.8% from December 2011, imports rose 1.9%. Of Japan’s three largest export markets—China, the US, and Europe—two had turned into a veritable trade catastrophe.

China had overtaken the US as Japan’s largest export market. And Japanese companies were brimming with optimism. Then the Senkaku Islands “dispute” erupted—in quotes because Japan insists that there is no “dispute,” the islands being Japanese. It didn’t take the Chinese government long to rile up its people against everything Japanese. And the images floating around the world were ugly.

At first, it appeared to be a spat that, like others, would be, after sufficient commotion, put back in the dirty-underwear drawer, unresolved, but out of sight. Instead, jets were scrambled by the Japanese to counter jets approaching the islands from China, and ships were involved, and perhaps shots might be fired. Rather than a spat, it has become an element of China’s growing territorial assertiveness.

Japan, which spends only about 1% of GDP on its military, can’t rattle its saber loud enough for China to notice. Instead, it has to rely on the resolve of its ally, the US, to keep the Chinese at bay. A resolve that China is testing. While a shooting war is somewhere between unlikely and unthinkable, given the economic ties between the three countries, tensions are rising, and tempers aren’t settling down, and Japanese exports to China are crashing.

In November they were down 14.5%; in December, 15.8% to ¥906 billion. Worst hit were cars, trucks, and parts (-47.5%), machinery (-22.2%), and electrical machinery, which includes tech products like semiconductors (-16.8%). Imports from China edged down by 2.1% to ¥1.24 trillion. And the trade deficit jumped by 76.8%.

This debacle is unrelated to the strength of the yen. It’s caused by the deteriorating relationship between two of the world’s largest trading partners. Knocking the yen off its lofty perch—it’s down 11% against the dollar and 15% against the euro since November—won’t have much impact. In that respect, Abe’s cure won’t work.

Then there’s Europe. In December, exports skidded by 12.3% to ¥561 billion, after having plunged 20% in November. To Germany, which now may be in a recession, they declined by 9.2%, to the UK by 10.2%, to France by 16.8%, to Spain by 26.2%, and to Italy by 28.2%.

These are crisis numbers, a function not of a strong yen but of the European economies that, despite ceaseless declarations to the contrary, have stepped up from a debt crisis to a full-blown economic crisis. And in this environment, Abe’s cure—demolishing the yen—will largely be ineffective.

And here is an awesome, amazing, and powerful appeal (video with lyrical English text) to the people of Japan to open their eyes. It slams the nuclear industry, the mainstream media, government bureaucrats, and politicians of all stripes.... humanERROR by “Frying Dutchman” (video).

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matrix2012's picture


Japan invaded other countries over half a century ago and the Japanese nationalists want to do it still because they have only an island and need resources and everything else. They did it just like the British did it. Until the Japanese people all realize and accept what the British already accepted and dealt well—give up invaded land and cooperating with the world for resources, there will always be problems in Asia. It is unwise that the US again has acted for convenience and alliance of the moment, instead of acting on principles and fairness. 

The US should not forget that encouraging an invader’s mentality can easily turn on against itself, just like supporting the Taliban in the 80s ends up supporting the terrorists against the US. Someday, there could be another Pearl Harbor again. Two countries competing for power can easily find themselves at war, as history repeatedly shown. 

The Chinese people should always stand up against invaders, even if their government cannot. This will be good for the whole world. Encouraging the invasionary mentality of a people with brutal acts of invasion is unwise for the whole world. If the US supports Japan merely because they think they can control Japan, they should be very careful. They should think “how many of the world events they are really controlling? Which one? In the middle east, or south Asia?”


"Japan in effect stole the islands from China in 1895 as booty of war ("Treaty of Shimonoseki").

It is certainly a very good question to ask why Japan kept the annexation of the islands (in 1895, Treaty of Shimonoseki) for so long. If it was a lawful annexation, why the secrecy?

There were at least the following reasons: 

1. The cabinet decision of 14 January 1895 was not lawful by Japanese domestic law and practices because there was no direct "approval" of the Japanese Emperor by imperial decree. The annexation was therefore illegal by domestic law and not legally binding by international law.

2. The survey carried out by the Okinawa's authority in 1885 was never completed and therefore was inconclusive to show the islands were Terra Nullius, i.e. with no owner. The Okinawan knew very well the islands were Chinese territories.

3. Since Japan already "got" the islands by the Treaty of Shimonoseki, and China was not in any position to object (Japanese gunboats were better then!), there was no real need to make the annexation public."


More at "The Inconvenient Truth Behind the Diaoyu/Senkaku Islands"


Optimusprime's picture

I thought the islands in question had been indisputably Chinese until the Japanese asserted control during their war with China in the '30's and '40's, that the US at the time backed the Nationalist Chinese demand that they be returned as part of the final peace settlement, etc. 

Of course, when the Nationalists themselves were booted out of China and the Mao regime took over, this position lost its allure.  But even now the US does not officially claim the islands to be Japanese.  It seeks to be the indispensable broker in any deal, long-term, while not being above backing Japanese provocations.


PS--just watched the video.  Good stuff, thanks.

dunce's picture

China is not testing our resolve, they know that obama just votes present and gives vapid speeches.

silverdragon's picture

It will be interesting to see how Japan responds to having their economy crushed like a bug. That whole Rape of Nanking thing may not have been forgotten.

It's a shame Japan can't export its old people and get a good price for them as they have tens of millions of them.

The sun is setting for the rising sun!


Hobie's picture

That whole rape of Nanking has not been forgotten. And China will make them pay.

TotalCarp's picture

Damn right, a reminder to americans that not only jews suffered horrific cruelty during the ww2

strangewalk's picture

For me it's curious why everyone seems to overlook the fact that Japan did pay for its war excesses, and perhaps overpayed. The Operation Meetinghouse incendiary bombing air raid of 9–10 March 1945 over Tokyo is estimated to be the single most destructive bombing raid in history, many similar raids followed over Tokyo and other cities, and Japan lost an estimated 3,000,000 million of its people to the war. Add to this Hiroshima and Nagasaki, total national humiliation and disillusionment, and the many years of intense suffering the Japanese went through after the war. On the other hand, Mao was responsible for many times more death and suffering in China than Japan, yet he is revered with his picture still hanging over Tian Am Men, and on every note of Chinese currency.    

Jadr's picture

You seem to be missing the point. Yes, the Japanese might have suffered greatly due to American bombing, but that wasn't a cathartic moment for the people of China....Feelings of revenge don't tend to work like that....

ptolemy_newit's picture

exactly where is this grave for 250,000 and the name list go with it?

can someone help identify the memorial?

CheapBastard's picture

The Rape of nanking, like the Holocaust, is fiction said Abe as well as many Japanese history books.


They may get a reality check soon....and some books re-written with the truth.

matrix2012's picture

Abe Shinzo, a Far-Right Denier of History

Narusawa Muneo

In December 2012, not a few people in Japan remembered the 75th anniversary of Nanjing Massacre. Those people hoped that the lessons from war crimes committed by the Japanese Army from 1931-1945 would be learned so that Japan would never wage war against another country again, and peace would be achieved in East Asia. These Japanese, however, now face a major challenge.

In Japan’s general election of Dec. 16th the Liberal Democratic Party, which had been in opposition since August 2009, won an overwhelming majority putting it back in power. With Abe Shinzo, a right-wing historical revisionist back as prime minister, the change of government is no longer just a Japanese issue.

The LDP is a nexus for history deniers who regard calls for historical reconciliation from neighboring countries as unjustified, deem their historical accounts as inaccurate, and claim that listening to such appeals for Japan to remember the past would be "masochistic.” As LDP president, Abe most eloquently embodies this character of the party.

With the signing of the Treaty of Peace in San Francisco (September 1951), Japan was allowed to resume its place in the international community. Japan’s neighbors in Asia expected it, in return, to scrap its imperial past and apologize sincerely for perpetrating a string of wartime atrocities. But while the Federal Republic of Germany began its postwar period by breaking from Nazism and apologizing for the Holocaust, the LDP, which ruled Japan for most of the postwar period, has acted as a hub for history revisionists, and so it remains.

It is impossible to imagine that somebody who denies the Holocaust would be elected as Chancellor of Germany. What the world is witnessing right now in Japan, seventy-five years after the Nanjing Massacre, is the reappointment as prime minister of an extreme rightist who sides with the Nanjing-deniers.

The people of Asia, where millions were killed by Japanese wartime aggression, and where many witnesses and survivors are still alive, have the right to ask this prime minister if he really believes that the Nanjing Massacre was a myth, and if he recognizes that Japan invaded neighboring countries.

The people of both Koreas and Koreans around the world are entitled to challenge Abe on whether he recognizes the Japanese Army’s wartime enslavement of thousands of women (so-called “military ‘comfort women’”), one of the most ferocious and dishonorable crimes of Imperial Japan. This prime minister has been adamant about removing any description of these crimes from textbooks and classrooms.

Here is a fundamental question. Sixty-one years after the resumption of sovereignty, does Japan, led by such a prime minister, truly deserve to be a legitimate and credible member of the international community? It is the people of Japan who, first and foremost, are responsible for asking that question, and the people of Asia and beyond are entitled to pursue it, and to demand clear answers.




q99x2's picture

My take on this is that China and the NWO have started into war already.

NWO NATO the UN or whatever are attacking Africa and the Mid East. And China is with Iran, Afagahnistan, North Korea and Africa. Obama made the South West Asia trip to the Western Nations of the Golden Triangle to get them on the US side and has the CIA heavily destabilising the Mid East and Africa. North Korea is threatening the US with Nukes and so on.

Looks the oligarchs have made the decision to balance the money back to wealth via WWIII. The US/NWO has begun to physically attack Chinese resources and Chinese has N. Korea threatening the US with Nuclear attack.

Everytime the noose begins to close on the banksters they bring the world to war. It is time that enough people in the world know who the real enemies are and go after them instead of each other.

OpenThePodBayDoorHAL's picture

Obomba's & Hilary's trip to SE Asia was a complete dud. They had prepared a grand new framework for Asia for the next 30 years which excluded China. Asia, including Australia, said no thanks we already have our own alliance that includes China but excludes the US.

Bazza McKenzie's picture

Australia has long been and remains a very close ally of the US.  They cooperate actively in intelligence collection and analysis, Australia hosts some US strategic facilities, their navies train together frequently and the US Navy uses Australian ports.  An agreement was recently announced for US marines to train in Australia.

Both sides of politics in Australia consider the US alliance to be the foundation of Australia's defence. Australia has no alliance with China, though since China is Australia's largest trading partner, the country tries to avoid offending China but not at the expense of its US alliance.  Incidentally Japan is also a major trading partner for Australia and Australia has been active in building a strong relationship with Japan over many decades.

I make no comment on whether Obama and Clinton's other activities in SE Asia have been a dud, but the US-Australian alliance is of long standing and will not quickly alter.

Bobportlandor's picture

If I was the japs I'd move some Fukushima to the Island.

It's all yours.

joego1's picture

I like the Frying Dutchman, moving. Great to see young people call bull shit on the status quo. 

FinalCollapse's picture

Demand has collapsed all over the world. Velocity of money has crashed. Printing of money will do very little to help. Every country is drowning in debt.

Aussiekiwi's picture

But...I thought money fixes everything? can't we just print money to pay the debt, how about a few  trillion dollar coins, there; no more debt, fixed it! it must work the Fed has been printing for years, surely they would not continue if it was not fixing anything, obviously we need to print more money, so simple if you just think it through like the FED has.

All Risk No Reward's picture

>>can't we just print money to pay the debt<<

No, money is debt that accrues interest.  If you borrow $x, you will pay back > $x.  Period.

The system is fraud.  Debt money is a Trojan Horse.  Stacking fractional reserve lending on top multiplies the damage many fold.

Debt Money Tyranny...  spread the word to the masses...


Orly's picture


I love succint nutshells.

With numbers.


Wonderful.  Thanks.


Almost Solvent's picture



That's what she said!

Tsar Pointless's picture

I'm not going to say "It's the beginning of the end".

But, it's beginning to look a lot like the end is about to begin.