By Harumi Taguchi, Principal Economist, IHS Markit
Ÿ Japan’s trade balance turned to a deficit of JPY203 billion (USD1.8 billion) on a non-seasonally adjusted basis in May, but the balance held on to a surplus of JPY134 billion on a seasonally adjusted basis, even though this was a decline of 15.1% from the previous month. The weakness in the trade balance reflected the acceleration in imports, which rose 17.8% year-on-year (y/y) and outpaced strong growth in exports, which strengthened from the growth of 7.5% y/y inApril to 14.9% y/y in May.
Ÿ While major contributors to the increase in exports were motor vehicles, iron and steel products, and ships, the increase in exports of semiconductor machinery suggests sustained strength in semiconductor demand, supporting trading partners’ fixed investment. Increases in exports of ships boosted exports to the EU, while exports to Asia and the US also strengthened (up 16.8% y/y and 11.6% y/y, respectively).
Ÿ Continued moderate increase in import volumes (5.4% y/y) meant the acceleration in imports was due largely to higher prices for oil and other resources. Mineral fuels contributed 7.0 percentage points to the import growth, while increases in imports of liquid natural gas and liquid petroleum gas partially reflected surges in imports from the US.
IHS Markit Views:
Although the trade balance on a non-seasonally adjusted basis turned to a deficit due to holidays in May, Japan’s trade balance is likely to maintain a surplus over the near term. That said, the surge in ship exports was largely a one-off factor, and softer growth in export volumes to Asia suggests upward momentum in exports could soften.
IHS Markit expects oil prices to gradually increase, so further growth in Japan’s trade surplus will depend on sustainable growth in external demand, semiconductor-related demand in particular, and uncertainties over the US policy as well as geopolitical risks.