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By Harumi Taguchi, Principal Economist, IHS Markit

 

Key Points:

Ÿ   Japan’s trade surplus fell 35.9% in June year on year (y/y) to JPY440 billion (USD39 billion) on a non-seasonally adjusted basis, and also declined by 33.6% from the previous month to JPY81 billion, the lowest surplus since December 2015, on a seasonally-adjusted basis. The y/y weakness reflected softer growth in exports (9.7% y/y) relative to a solid increase in imports (15.5% y/y).

Ÿ   Major contributors to the increase in exports were semiconductor machinery, motor vehicles, semiconductors and auto parts, suggesting that continued solid external demand for auto and semiconductors and an uptick in production will support fixed investment overseas. That said, amajor reason behind softer exports was weaker growth in export volumes (5.2% y/y) due to weaker figures for US (5.2%y/y), the European Union (4.5% y/y) and Asia (3.5% y/y), although export volumes to China continued to increase solidly (14.2% y/y).

Ÿ   While growth in exports and imports is about the same in volume terms, higher prices for oil and other resources (iron and coal in particular) boosted import prices, which contributed to a sustained high increase in imports. That said, increases in imports of semiconductors, iron and steel products, computer units and other machinery suggest increases in domestic production and capital expenditures.

Ÿ   Mineral fuels are the major contributor to imports, and surges in imports of petroleum and coal from the US helped narrow Japan’s trade surplus by 4.9% y/y to the US to JPY587 billion.

 

IHS Markit Views:

Although the softer increase in exports was due partially to the drop-out of a one-off factor, upward momentum for exports has eased somewhat. Nevertheless, IHS Markit expects Japan’s trade balance to remain in surplus, reflecting outlooks of solid growth in the global economy, weakening of the yen and mild increase in oil prices.

That said, further increase in trade surplus could be limited by waning expectations for upside from the US fiscal stimulus and an associated correction of the yen weakening.

 

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