By Park Hyong-ki
Staff Reporter
Korea is suffering from an increasing current account deficit with Japan.
According to the Bank of Korea, the trade deficit with Tokyo hit 28.4 billion won last year, up 13 percent from 2006.
The shortfall in the current account ― the broadest measure of trade, services and investment that flows into and out of the country ― with Japan has been surging rapidly since 2004.
Analysts attribute the snowballing deficit to increasing outbound tourism to Japan and imports of high tech parts for Korea's manufacturing sector.
Korea's trade balance with the United States, Latin America and Asia's emerging markets such as China was in the black.
This means that money earned from such regions has been sent to Japan over the last three years.
The only way to offset the growing trade deficit with Japan is either by shipping more Korean goods to the country or increasing investment in research and development to catch up with Japanese technology.
But analysts say that it will be difficult to do so.
``Korean products are not competitive on Japan's market. They cannot match Japanese goods,'' said Park Sang-hyun, the chief economist of CJ Investment & Securities.
He also noted that investment in R&D takes years of effort, thus Korea will not be able to see immediate results ― whether good or bad.
``It will be hard to break the deficit trend with Japan for the time being,'' Park added.
LG Economic Research Institute noted that over half of Korea's earnings gained from global markets are being given to Japan over the years, raising concerns over the vicious cycle.
However, Japan is not the only country that Korea is worrying over. The current account deficit with the Middle East has been surging on increasing imports of oil and gas from the region.
The trade deficit with the Middle East fell 2.5 billion won to 44.8 billion won in 2007. The central bank said, ``The country was able to lessen the deficit last year by increasing Korean exports of steel, machinery and electronics products to the region.''
phk@koreatimes.co.kr