The deficit could reach ¥16 trillion (US$130 billion) for fiscal 2022 if crude oil bounces back to US$130 a barrel and the yen trades at 120 against the dollar.

Japan’s slide into a current-account deficit in recent months has raised questions about the benefits of a weaker currency and concerns about the risk of a downward spiral.

Preliminary balance-of-payments data released Friday shows a ¥1.65 trillion current-account surplus for February, down 42.5% on the year but back in the black after two months of deficits.

Exports ramped up during the Lunar New Year holiday in China, narrowing the trade deficit. This, along with regular interest payments from US Treasury bonds, lifted the balance back into positive territory.

But “the current-account balance will probably go into the red from spring onward even after smoothing out seasonal factors,” said Koya Miyamae of SMBC Nikko Securities.

The Japanese currency was trading in the low ¥124 range against the dollar Friday.

The current account, a broad measure of transactions with the rest of the world, covers goods, services, interest and dividends, among other items.

Japan last logged a current-account deficit on a calendar year basis in 1980, and there is no fiscal year deficit on record in data going back to 1996.

The Nikkei NEEDS model projects the current-account deficit for fiscal 2022 at ¥8.6 trillion under the standard scenario of ¥116 to the dollar and oil at US$105 a barrel.

Front-month contracts for West Texas Intermediate crude futures jumped from US$95 a barrel in late February to touch more than US$130 in early March and have hovered around US$100 this month amid energy uncertainty created by Russia’s invasion of Ukraine.

A return to US$130 would push Japan’s full-year current-account deficit to ¥16 trillion, equivalent to 3% of nominal gross domestic product, the Nikkei model shows.

The higher oil price would drag real growth down 0.3 percentage point to 1.8%. High crude prices weigh heavily on Japan, which imports nearly all of its oil and natural gas.

Costlier energy hits not only consumer spending – more than half of Japan’s GDP – but also capital investment by businesses.

A weak yen was long regarded as a boon for increasing Japan’s exports of autos and other products.

But if oil averages US$105 a barrel, not far from recent levels, the current-account balance would be negative even if the yen softened to 130 against the dollar. Oil would need to drop to US$90, and the yen to 140, to achieve a surplus.

A weaker currency now means a larger trade deficit, the Nikkei model shows. Because manufacturers moved production abroad during past periods of yen strength, exports no longer provide the boost they once did.

With oil at US$105 a barrel, the fiscal 2022 deficit would come to ¥22.7 trillion at ¥110 to the dollar and ¥25.4 trillion deficit at ¥130.

A current-account deficit poses a risk for the yen. Investors no longer flock to the currency as a safe haven in times of geopolitical risk as they once did. In terms of real demand, companies are exchanging yen for dollars to pay for commodities.

Daiwa Securities forecasts ¥16 trillion in selling of the Japanese currency in 2022.