Japan economy - fourth consecutive trade deficit.
Published 30 January 2015
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
For the fourth consecutive year, Japan’s visible trade deficit hits another record high. The good news is that recent data suggests the trend has shifted due to a sharp drop in oil prices. The Government estimates that current oil prices, if sustained, could raise Japan’s GDP by more than 1%.
Detail
The Ministry of Finance’s (MOF) goods trade data released on 26 January showed that for the fourth consecutive year, Japan’s visible trade balance reached a record deficit; 12.78tr yen (£71bn) in 2014 from 11.47tr yen in 2013. Annual imports of 85.9tr yen (£484bn), representing a 5.7% YoY increase, overwhelmed the modest 4.8% increase in exports. Continuing demand for LNG drove import demand. On a volume basis, both exports and imports were up 0.6%, respectively, in 2014.
Despite December producing the thirtieth consecutive, monthly trade deficit, the goods trade balance declined 50% to 661bn yen (£3.7bn). The reduction was driven by a sharp decrease in the value of crude oil imports due to plunging oil prices. Value of overall imports increased 1.9% compared to a year ago (YOY), but a 22% decline in crude oil imports that reduced the overall import growth rate by -4.2%.
Meanwhile, exports gained 12.9% YOY, supported by increases in: automobile (12.5% YOY), electronic parts (17.8% YOY) and iron steel (11.7% YOY) exports. Strong demand from the USA and Asia helped grow exports. On a volume basis, exports were up 3.9% YOY while imports declined 1.8% YOY in December.
MOF trade data shows annual UK visible exports to Japan increased 5.3% while visible, Japanese imports to the UK grew at 9.3% in 2014. The UK’s goods trade deficit expanded 15.1% to 509bn Yen (£2.9bn) during 2014. The monthly December figures show UK visible exports and imports to and from Japan, were up 7.8% YOY and 17.2% YOY, resulting in 26.8% YOY increase (67.8bn yen, £382m) in its goods trade deficit with Japan.
Comment
While, falling oil prices have helped Japan begin to redress its trade deficit, it is simultaneously making it more challenging for BOJ to achieve its 2% inflation target. If weak oil prices are sustained, and savings passed on to the consumer, household real disposable income should rise and corporate input costs reduce theoretically stimulating domestic economic growth. The Cabinet Office estimates that if the 50% decline in oil prices is sustained it should boost Japan’s nominal GDP by 1.2% in the first year and 1.7% in the second year; and that the value of Japan’s annual imports would be halved by value to 7tr yen.
The question is how much of this saving will trickle down into the economy and will be enough to provide reassurance for Japanese consumers to stimulate domestic spending. Many remain concerned about their long term job security and are still feeling the pinch from the last VAT rise.
Disclaimer
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