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By Harumi Taguchi, Principal Economist, IHS Markit

Key Points:

Ÿ Japan’s current-account surplus for June rose 8.7% month on month (m/m) to JPY1.5 trillion (USD13.8 billion) on a seasonally adjusted basis, but continued to fall year on year (y/y) with a 4.3% decline to JPY 935 billion on a non-seasonally adjusted basis. While the m/m improvement reflected a narrower deficit in the services balance and growth in primary income, which offset the narrower trade surplus, the y/y decline was due to the decline in the trade surplus.

Ÿ The decline in the trade surplus reflected a solid 15.9% y/y increase in imports, thanks to relatively stable growth in import volume with higher import prices for oil and other commodities while growth in exports softened to 9.0% y/y from 12.9% y/y in May. Exports have declined for the fourth consecutive month due largely to weaker export volumes and a correction of the yen’s weakness.

Ÿ The deficit in services balance narrowed by 74.1% m/m on a seasonally adjusted basis, or 68.4% y/y on a non-seasonally adjusted basis, thanks largely to increases in receipts from construction and the use of intellectual property. Primary income rose 8.3% m/m on a seasonally adjusted basis following three consecutive months of decline, or by 22.9% on a non-seasonally adjusted basis, reflecting greater income from direct investment.


IHS Markit Views:

Although positive outlooks for the global economy will support an uptrend in Japan’s exports, softer momentum is likely to continue over the near term, given that the Nikkei Manufacturing Purchasing Manger’s Index for July, calculated by IHS Markit, suggests the weakest growth in export orders since August 2016. Improved industrial production and commodity prices are likely to support growth in imports.

Preliminary customs figures for the first 20 days of July declined 94.4% to JPY562 billion compared to the same period last year, which also suggests that the trade surplus will remain slack. The correction of the yen’s weakening is also likely to weigh on the increase in the primary income and the current-account surplus over the near term.


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