With Positive Balances on Current and Financial Accounts Japan Continues to Pile Up Foreign Exchange Reserves

For the first quarter of 2004, Japan reported a current account balance of 50,388 (100 million yen) or about 15,000 (100 million yen) above the first quarter of 2003. At the same time, the financial account showed an increase of 132,395 (100 million yen).

A country that runs a positive balance on current account usually tends to run a negative balance on its financial account since the balance of payments, by definition, has to sum to zero. Japan, however, frequently runs a positive balance on its financial account as well as its current account. As a result of these positive balances, Japan's holdings of foreign exchange increase. Changes in reserves have become an important item in Japan's balance of payments. Since the balance of payment has to sum to zero, an increase in reserves is shown as a negative figure while a decrease in reserves is shown as a positive figure

For the last four quarters, Japan has reported positive balances on both current and financial accounts. As a result, gold and foreign exchange reserves have risen sharply. Since the end of 2001 to the end of March this year, they have more than doubled from $402 billion to $827 billion.