Research and analysis

Japan: 26th Monthly Trade Deficit

Published 23 September 2014

0.1 Summary

For the 26th consecutive month, Japan’s visible trade balance recorded a deficit in August, but was smaller than predicted. Despite earlier expectations, the weaker Yen has not yet boosted Japan’s exports. The Bank of Japan’s (BOJ) fund flow data confirmed that BOJ remains the largest Japanese Government Bond (JGB) holder in the second quarter.

0.2 Detail

Japan’s visible trade balance in August recorded a deficit of 948.5bn Yen (£5.4bn) in August, 2.4% lower than this time last year (YOY) and better than consensus expectations of around 1 trillion yen (£5.6bn). Although imports declined 1.5% YOY to 6.6 trillion yen (£37bn), exports also fell by 1.3% YOY to 5.7 trillion yen (£32bn), the first fall in two months. This is the 26th consecutive monthly trade deficit. Import volumes were down 2.9%, and exports down 4.6% YOY.

By region:

• exports to China contracted 0.2% YOY, the first time in 17 months,

• exports to US contracted by 4.4% YOY,

• imports from Asia fell by 3.1% YOY; and

• imports from the EU fell by 1.5% YOY.

In terms of products:

• weak exports of organic compounds and automobiles were mainly responsible for the drop in overall exports , and

• energy related products remain the single category in overall imports.

According to Japanese statistics, Japan retains a goods surplus of 39.5bn Yen (£223m) despite UK exports to Japan increasing 6.8% YOY to 55.7bn Yen . The UK’s imports from Japan rose 5.4% over the same period to 95.2bn Yen .

The Quarterly Flow of Funds data released by the Bank of Japan (BOJ) in late September showed that its holdings of Japanese Government Bonds (JGB) in the Q2 2014 expanded by 43.8% YOY to 215 trillion yen (£1.2tn). The BoJ remains the largest holder of JGBs with a 21.2% share. Japan’s households’ financial assets expanded 2.7% YOY to 1645 trillion yen (£9.3tn) in the quarter, a new record.

The Nikkei 225 index on 18 September closed over the 16,000 mark for the first time since January this year following the data release. This was supported by news overnight on the Federal Reserve’s monetary policy intentions, which supported US share prices. The Yen also fell to its lowest level against the US dollar since September 2008, supporting the share prices of Japanese exporters

0.3 Comment

Economic pundits had previously estimated that weaker Yen realised after Abenomics launch would increase Japan’s exports to support its economic growth. Trade figures so far show that their estimates have been optimistic and that export led growth is taking longer than expected. However, the BOJ continues to believe that exports will eventually increase and that they are currently being held back by depressed demand from overseas.

Although international trade accounts for less than 15% of the Japanese economy, these figures, coupled with the poor Q2 economic data continue to make plans to further increase VAT domestically controversial.

0.4 Disclaimer

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