"We Did It for the First Time in 10 Years... This Time, It's Real": Record-High Q1 Current Account Surplus Thanks to Semiconductor Boom [BOK Focus]

South Korea's Q1 Current Account Surplus Reaches $73.78 Billion, Surpassing Japan's $60.93 Billion
First Overtake in 10 Years and 3 Months Since Q4 2015
Record Goods Balance Rally Driven by Semiconductor Export Boom
Focus on Potential Annua

In the first quarter of this year (January to March), South Korea's current account surplus surpassed Japan's for the same period. It is the first time in about 10 years that the quarterly current account balances of the two countries have reversed. This reversal is particularly significant because it was driven by South Korea's record-breaking goods account surplus, fueled by the semiconductor supercycle—a result based on export competitiveness rather than temporary factors. Market watchers are now paying attention to whether South Korea’s strong semiconductor performance will lead to a full-year reversal in current account balance against Japan. However, many analysts note that it is too early to say whether this trend will continue, as the factors driving each country's surplus are different and various uncertainties remain, including the ongoing war in the Middle East, aside from the semiconductor cycle.

Containers are piled up at Pyeongtaek Port, Gyeonggi Province. Photo by Yonhap News

"Semiconductors Led the Way"—South Korea's Current Account Surpasses Japan’s for the First Time in 10 Years

According to Japan’s Ministry of Finance on May 14, the nation’s current account surplus for the first quarter, including the 4.6815 trillion yen recorded in March, totaled 9.5558 trillion yen. This translates to approximately 60.93 billion dollars, based on the exchange rate at the time of the monthly announcement. This figure is lower than the 73.78 billion dollar surplus reported by the Bank of Korea on May 8 for the same period. The first-quarter surplus for South Korea was the largest ever recorded for a single quarter. Typically, the goods account surplus tends to decrease in the first quarter due to seasonality, but this year, a surge in semiconductor exports led to an explosive increase in the goods account surplus, offsetting any seasonal effects.

The current account represents the results of real transactions—including exports and imports of goods and services, as well as wages and investment income—within a country's balance of payments. According to OECD statistics, South Korea’s surplus from such real transactions has not surpassed Japan’s since the fourth quarter of 2015, marking a 10-year and 3-month gap. On a quarterly basis, South Korea previously outpaced Japan in the fourth quarter of 2012, from the third quarter of 2013 to the fourth quarter of 2014, and again in the fourth quarter of 2015. On an annual basis (January–December), South Korea exceeded Japan’s record in 2013 and 2014. However, analysts at the time attributed these results not so much to South Korea's robust performance, but rather to Japan’s sluggishness in the wake of the 2011 Great East Japan Earthquake and its aftereffects.

10 Years Ago: Impact of the Great East Japan Earthquake, Recession-Driven Surplus for Korea—"This Time Is Different"

The previous reversal a decade ago was largely due to temporary factors, such as a spike in Japan’s energy imports after nuclear power plants were shut down following the Great East Japan Earthquake, sharply reducing its current account surplus. This period also saw the accelerated decline of Japan’s once-dominant electronics companies. Additionally, the sharp depreciation of the yen under ‘Abenomics’ from late 2012 further reduced the dollar value of Japan’s current account balance. Japan’s current account surplus, which exceeded 200 billion dollars in 2010, was halved to 130.49 billion dollars in 2011, and further dropped to 45.66 billion in 2013 and 37.05 billion in 2014.

At the time, the strengthening of the Korean won increased South Korea’s current account surplus in dollar terms, allowing it to outpace Japan for the first time on an annual basis with a surplus of 77.26 billion dollars in 2013. However, this surplus was considered recession-driven, resulting not from healthy economic growth but rather from a sharper decline in imports than exports due to weak domestic demand and slowing export growth.

The atmosphere in the first quarter of this year is different. The reversal was driven by a record goods account surplus resulting from booming semiconductor exports. Increased investment in artificial intelligence (AI) servers and high memory prices fueled export growth. According to the Ministry of Trade, Industry and Energy, first-quarter exports based on customs clearance rose 37.8% year-on-year to a record 219.9 billion dollars. Of this, semiconductor exports soared 139% to 78.5 billion dollars. Japan’s lagging performance is not the reason for the reversal this time. Japan has also posted strong results, with increased overseas investment income and robust exports of electronic components and food products, contributing to its growing current account surplus.

A green light is on at the traffic signal in front of SK hynix headquarters in Icheon, Gyeonggi Province. Photo by Yonhap News

Full-Year and Sustained Reversal? "It Remains to Be Seen"

Nevertheless, experts urge caution in predicting whether South Korea will maintain its lead over Japan on an annual or lasting basis. The key drivers of the current account in both countries are fundamentally different, and significant uncertainties—such as the impact of the Middle East war—persist. In South Korea, the goods account, which reflects the difference between export and import values, is the largest contributor to the current account. In the first quarter, the goods account surplus (73.61 billion dollars) was nearly identical to the total current account surplus (73.78 billion dollars), thanks to robust semiconductor exports.

By contrast, Japan’s current account surplus is overwhelmingly influenced by primary income, particularly income from interest and dividends on overseas assets (investment income) and profits from direct investments, including mergers and acquisitions (M&A). The primary income account surplus exceeds the size of Japan’s current account surplus. In 2023, the primary income account surplus stood at 41.5903 trillion yen, far surpassing the current account surplus of 31.8799 trillion yen.

Expectations for South Korea’s current account surplus this year are on the rise. Last month, the Bank of Korea announced it expects the year’s surplus to exceed the 170 billion dollar forecast made in February. The revised estimate is expected to be detailed in the May economic outlook. For comparison, Japan’s current account surplus in 2023 was about 213.01 billion dollars. The critical variables are the strength of semiconductor exports and the impact of the Middle East war. At present, the upward pressure from semiconductors appears strong enough to more than offset the downward pressure from the conflict in the Middle East.

Jo Eun, Associate Research Fellow at the International Finance Center, stated, "Most overseas investment banks (IBs) believe that the increase in semiconductor exports will far outpace the rise in import costs due to higher energy prices, further strengthening the large current account surplus trend." She continued, "In the past, rising oil prices worsened the terms of trade, leading to higher import prices and a weaker current account, but recently, the surge in semiconductor exports and steady overall export growth have maintained a large trade surplus, absorbing much of the shock from higher oil prices." However, she cautioned that the possibility of stagnant semiconductor export volumes and weakening export momentum in non-AI sectors should be closely monitored going forward.

This content was produced with the assistance of AI translation services.