With all the focus on the Eurozone, the media is not paying much attention to events in Japan. The country has had a radical degradation in its energy infrastructure, which diminished production and tremendously increased its dependence on imported fuel. The trade deficit has spiked.
BW: Japan’s current account deficit, the first since 2009, was a record 437.3 billion yen ($5.4 billion) in January after nuclear plant shutdowns drove up energy imports. While seasonal factors played a role, the data pointed to constraints on the nation’s rebound after last year’s earthquake and economic contraction.
|Japan's current account balances (Bloomberg)|
The Japanese exporters are pressuring the government to further weaken the currency (which is still extremely strong on a historical basis). In the mean time the BOJ is continuing with its QE program which should help the exporters over time. But the "weaker yen" strategy is no longer as appealing because fuel imports would become that much more expensive. Stuck between the two alternatives of either higher energy costs (lower margins) or weaker exports, Japan is truly in a tough spot.