Japan Posts Trade Surplus

Japan posted a trade surplus for a third straight month in November as imports continued to fall faster than exports. Export values declined at the slowest pace since September 2015, with exports to China rising for the first time since February.

Exports fell 0.4% in November from a year earlier (forecast -2.3%), after declining 10% in October, according to finance ministry data released on Monday, Bloomberg reported.

Imports declined 8.8% (forecast -12%), following a 17% drop the previous month.

Japan had a trade surplus of 152.5 billion yen ($1.3 billion) in November. The seasonally adjusted trade balance was a surplus of 536.1 billion yen.

The results were released as the Bank of Japan begins a two-day monetary policy board meeting. The yen has weakened more than 10% against the dollar since Donald Trump’s election, raising the value of Japanese exports in dollar terms and improving prospects for corporate earnings.

Net overseas shipments, which subtract imports from exports, was the biggest contributor to third-quarter economic growth. Confidence among large manufacturers has improved for the first time since June last year, according to the Bank of Japan Tankan survey released this month.

 Positive Signs

“The weakening yen and expectations of a pick-up in the US economy are providing a tailwind for Japanese exports,” said Junko Nishioka, chief economist for Japan at Sumitomo Mitsui Banking Corp. in Tokyo.

“The manufacturing sector is picking up globally, with a recovery in electronics parts and automobiles,” she said, noting that export volumes to the US, European Union and China rose.

“Japan’s exports are recovering and this trend is likely to continue,” said Kengo Tanahashi, economist at Nomura Securities Co. in Tokyo, adding that domestic demand remains fragile.

Exports to the US dropped 1.8% in November from a year earlier. Shipments to the EU fell 2.2% and exports to China, Japan’s largest trading partner, gained 4.4%.

 Fiscal Risks

While the economic focus of the world is shifting from monetary to fiscal policy, the Organization for Economic Cooperation and Development sees Japan as a notable exception. Japan has little room left for increasing fiscal spending due to the national and local government debts being more than twice as large as its gross domestic product, the organization said, Nikkei reported.

Although the Japanese government has a medium-term goal of cutting the ratio of the nation’s primary balance deficit to 1% of GDP in 2018, the OECD expects it to be 2.75%.

Ironically, Japan’s interest in fiscal health has waned, and the BoJ is partly responsible for the indifference.

The BoJ has purchased roughly 40% of Japanese government bonds under its quantitative easing policy, and the rate will reach 60% in March 2019 at the current pace of acquisition. The central bank has also launched a program to keep the yield on 10-year JGBs at around zero.