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Monday, January 25, 1999 Published at 09:32 GMT

Business: The Economy

Record trade surplus for Japan

Japan's surplus grew fastest with the US

Japan's trade surplus surged by 40% in 1998 to a new record, sparking fears of a new trade war with the US.

Japan's surplus for the year was $122bn, (¥13.9 trillion). Nearly half of the surplus, some $58bn, was accounted for by its trade surplus with the US alone.

US Deputy Trade Representative Richard Fisher said the size of the surplus was unacceptable. "This is something that isn't sustainable. It's too large," he said.

Mr Fisher is in Tokyo for talks with the Japanese Government about steel exports. The US has said that Japan must cut back its steel exports or face trade sanctions for "dumping" - selling steel for less than it costs to produce.

Steel imports have risen 91%, contributing to the record US trade deficit that is running at nearly $200bn a year.

Asian producers are also up in arms about Japan's plan to impose high tariffs on imported rice to protect domestic producers.

Weak imports

The main cause of the huge Japanese trade surplus is the weak state of the Japanese economy, which is in its worst recession since World War II.

While exports rose by 0.5%, imports dropped by more than 10% for the first time in five years.

"Perhaps the question for Japan is not when will the economy recovery, but is there a way out of the current mess," commented Brian Rose of Warburg Dillon Read.

Despite two big economic stimulus packages from the government, the Japanese economy has yet to show any real signs of recovery, and is expected to remain in recession for most of this year.

The US and the EU say that Japan is not doing enough to open its markets to Western imports. Japan's trade surplus with the EU also rose sharply, up some 68%.

Rising yen

Japan's chances of exporting its way out of recession are fading, despite the huge surplus.

Exports to Asia were down 18%, and the slowdown in the US and European economies is likely to cut into prospects for any further increase there.

And the strengthening of the Japanese currency, the yen, from its low of 145 to the dollar in June to around 110 at the end of the year, trimmed exports in December.

The yen is now weakening again, and closed in Tokyo on Monday at 114.34.

The Japanese Ministry of Finance says that measures are urgently needed to stabilise the currency.

A Japanese proposal for a currency zone, put forward by Prime Minister Obuchi on a recent trip to Europe, mostly fell on deaf ears.

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