Japan Trade Deficit Increases

Japan posted a bigger-than-forecast trade deficit in January as auto exports declined and energy import costs increased.

Economists cautioned against reading the single month’s figures negatively, noting that global demand should support Japanese exports this year, Bloomberg reported.

Exports rose 1.3% from a year earlier (versus +5% estimate). Imports climbed for the first time in two years, by 8.5% (versus +4.8% estimate). 

Trade deficit for January was 1.1 trillion yen ($9.73 billion), compared with expectations for a deficit of about 625.9 billion yen. 

After snapping a sustained slump in December, any strength in exports is a welcome boost to Prime Minister Shinzo Abe’s efforts to spur economic growth, and a buttress to corporate profits ahead of the annual spring wage negotiations. Higher commodity prices stemming from OPEC’s decision to cut production last year increase Japan’s import bill, but should help the central bank in its campaign to spur inflation.

A 6.6% drop in exports to the US reflected a slide in car sales that underscores the preference of many American consumers for SUVs relative to Japanese sedans, according to the government in Tokyo. This may assist Finance Minister Taro Aso when he gets into bilateral talks on trade and the economy in April with Vice President Mike Pence. The threat of US protectionism remains a large risk for Japan, even after the warm welcome Abe received from President Donald Trump earlier this month.

The slowdown in exports seen in January is just temporary and there’s no change to the view that Japan’s economy is driven by external demand while domestic forces remain weak, according to Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co in Tokyo.

“Exports are still on the recovery track,” said Kodama. “The global economy is steadily recovering.”

Bob Baur, the chief global economist at Principal Global Investors, said on Bloomberg TV that he “wouldn’t get too excited about any one-month number.”

“Exports were really good in the fourth quarter,” said Baur. “Imports are better than people think, and that means somebody is buying, which I think is positive in the longer term for Japan.” The Details Exports to the US fell 6.6% from a year earlier. Shipments to the EU decreased 5.6%. Sales to China, Japan’s largest trading partner, climbed 3.1%.

The value of exports of motor vehicle fell 6.7%.

Crude oil imports jumped almost 36% by value, contributing 2.8% of the rise in total imports.