Japan’s economy had record high deficits during 2012 due to falling exports to Europe and China in a trade gap estimated at $78 billion.
Newly elected Liberal Democratic Prime Minister Shinzo Abe has proposed an aggressive round of stimulus spending to stoke the fires of economic development in the world’s third largest economy.
The strength of the yen and a weak economic environment in Europe have hurt Japan’s exports. A strong yen means that Japanese products are more expensive on global markets. The Senkaku/Diaoyu islands territorial dispute with the People’s Republic of China has weakened demand for Japanese products in that market, Japan’s largest foreign export market.
Another reason for the deficit is Japan’s newfound reliance on fossil fuels after shutting down all of its nuclear reactors in the wake of the Fukushima disaster. Prior, Japan relied on nuclear energy to produce 30% of its total energy needs.