Japan’s record trade deficit in 2012 mainly reflected the fragility of the global economic recovery and a persistently high bill for energy imports, with currency strength playing a secondary role. Nonetheless, this is unlikely to prevent some officials from trying to talk the yen down further. The latest comments from Deputy Economy Minister Nishimura support speculation that the government would be happy with a level of around 100 to the dollar, compared to the current 89. We don’t think the yen will fall quite that far (we have pencilled in a trough of 95 in the first half of the year before a recovery towards 80 in the second), but the near-term risks are skewed towards weakness.
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