TOKYO , Jan. 27 -- ( Kyodo ) _ Japan's goods trade deficit reached a record high in 2013, sparking fears that the country would become one with a constant current account deficit in the near future. If expectations intensify that Japan's current account balance remains in the red for an extended period, long-term interest rates would jump and the value of the yen could dive, worsening the economic and fiscal situation down the road, experts warn. Last year, Japan logged a record trade deficit of 11.47 trillion yen ( $112.07 billion ), up 65.3 percent from the previous year, the Finance Ministry said Monday in a preliminary report, underscoring that the world's third-biggest economy is no longer an export powerhouse. The trade deficit came as the depreciation of the yen and growing demand for fossil energy, including liquefied natural gas and crude oil, drove up import costs amid the suspension of nuclear power plants following the crisis at the Fukushima Daiichi complex in 2011. The nation's current account balance would stay in the black as long as a surplus in income account, which reflects how much Japan earns from its foreign investments, can more than offset trade and other deficits. Recent data, however, suggested a trade deficit could exceed an income surplus in a chronic manner. In November, Japan registered a current account deficit of 592.8 billion yen , the largest among comparable data available since 1985. Fiscal and economic policy minister Akira Amari has expressed anxiety about the current account deficit, saying if the government leaves this issue unsettled, Japan "may become like the United States in depending on other countries for its financial funds." This is just what market participants are worried about, as the pace of export growth has been moderate due in part to a slowdown in emerging economies and Japan's needs for fossil energy are unlikely to wane with no resumption of nuclear plants in sight. "Investors, in particular bond traders, have become skeptical about whether Japan can continue to cover its fiscal deficit with domestic assets alone," a person familiar with the matter said on condition of anonymity. So far, around 95 percent of Japanese government bonds have been financed smoothly at home, as the Bank of Japan has pledged to buy massive government bonds in an attempt to keep long-term interest rates low to stimulate the economy. "But if Japan's current account balance deteriorates and investors start to expect the government would be compelled to sell its bonds to foreigners, they could try to let go of them with concern growing over the outlook for the sovereign bond market," he said. A selloff in government bonds would trigger a surge in Japan's long-term interest rates. This would create a vicious cycle where expansion in the government's interest payments on its bonds would hamper Japan's efforts to restore its fiscal health, prompting more investors to sell them and raising the interest rates, analysts said. Japan's fiscal health is the worst among major developed economies with public debt equivalent to more than 200 percent of gross domestic product. The central government debt topped 1,000 trillion yen for the first time ever last year. " Japan's turning into a country with a constant current account deficit would bring about a bad yen weakness, significantly hurting the economy," said Masanobu Ishikawa , general manager of spot foreign exchange at Tokyo Forex & Ueda Harlow . The yen would face downward pressure, as long as importers sell the yen against foreign currencies to purchase goods and services from abroad at a faster pace than exporters exchange foreign currencies they earn overseas for the yen, Ishikawa said. "If traders expect Japan will keep posting current account deficits for a long period and become eager to sell the yen, the Japanese currency would plunge and Japan's import costs would rise further, causing sharp inflation and dragging down the economy," he added. Some economists call on Japan to boost the number of foreign visitors to improve the current account balance. "For Japan that has been suffering from prolonged trade deficits, bolstering tourism would be an effective way to obtain foreign currencies," said Takuya Hoshino , an economist at Dai-ichi Life Research Institute . Ahead of the 2020 Tokyo Olympics, the government should "work to make Japan a tourism-oriented nation," he said. Prime Minister Shinzo Abe's administration has said it aims to double the number of annual foreign visitor arrivals in Japan to 20 million by the Olympics, after the number topped 10 million last year for the first time ever.
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