(Bloomberg) — Japan’s trade deficit narrowed less than expected in November even as commodity prices cooled, as the impact of the weaker yen continued to weigh on imports.

The trade gap remained above 2 trillion yen ($14.8 billion) for a fourth consecutive month, finance ministry figures showed Thursday, with the 2.03 trillion yen deficit much larger than a shortfall of 1.68 trillion yen estimated by economists. 

Imports increased 30.3% from a year ago compared with a 26.9% forecast, while exports gained 20%, largely in line with expectations. Inbound shipments were still led by crude oil and coal shipments, while exports were pushed up by cars, construction and mining machinery.

Japan’s trade balance has now been in the red for 16 consecutive months, and the country is set to finish the year with a record annual trade deficit. That’s an indication of the battering the economy has taken from an unfavorable net trade performance impacted by the weak yen and commodity costs.

“The larger-than-expected trade gap was caused by imports increasing more than expected,” said Kohei Okazaki, a senior economist at Nomura Securities Co., noting the continued impact of energy costs.  

While cooling commodity prices helped slice around 2.3 billion yen off Japan’s energy import bill, the impact was offset by greater demand as the country heads into winter. Still, crude oil prices have fallen around 40% since their March peak this year.

The data also showed that the average exchange rate last month was 146.43 yen to the dollar, 28.5% weaker than a year earlier, and largely unchanged from the previous month. 

Economists expect the trade gap to start narrowing as commodity costs continue to fall and the yen’s renewed buoyancy improves the terms of trade. 

What Bloomberg Economics Says…

“Looking ahead to December data, we expect the trade deficit to narrow further. The yen’s recent gains and lower oil prices should temper the costs of imports.”

— Yuki Masujima, economist

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Still, weaker demand from key trading partners is also a risk for Japan’s recovering exports. The recent contraction in US manufacturing and high uncertainty over China’s virus-related restrictions also point to softer demand from abroad.

The pace of growth in exports to China more than halved to 3.5%, well below the gains of more than 30% to the US and Europe. Exports of chip-making devices to China fell more than 20%, while those of auto parts also declined around 20%.

Going ahead, a relaxation of virus restrictions in China may provide more demand to help make up for weakness expected to emerge from other markets next year as the global economy slows. 

“I don’t know what will happen to the Chinese economy, but there are signs of a resumption of economic activity, and the real estate problem is getting settled,” said Nomura’s Okazaki. “It’s also possible that exports to China, especially materials, will pick up.”

Thursday’s trade data will feed into the broader economic picture that will be considered by the Bank of Japan board next week, when it makes its last policy decision of the year. 

Economists expect the central bank to stick with its rock-bottom interest rates for now, and remain unmoved for the rest of Governor Haruhiko Kuroda’s term. 

Market watchers are now increasingly focused on what will happen after a new governor takes up Kuroda’s role in April.

(Updates with more details from report, economist comments)

©2022 Bloomberg L.P.


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