Japan’s real GDP growth for the first quarter of 2019 was revised up marginally to 0.6 percent quarter to quarter. Photo: Privacy.

JAKARTA (TheInsiderStories)Japan’s trade deficit widened by 9.8 percent year on year (YoY) to JPY249.6 billion (US$2.3 billion) in July on a non-seasonally adjusted basis. The trade deficit also expanded by 273.9 percent in July from the previous month to JPY126.8 billion on a seasonally adjusted basis, recording the fifth consecutive month of a deficit.

Export volume increased by 1.6 percent (YoY) – the first annual rise in nine months- and this helped narrowing the contraction in export values to 1.6 percent (YoY) from a 5.5 percent (YoY) drop in June. However, the decline in import value also narrowed to a 1.2 percent (YoY) drop from a 5.2 percent (YoY) drop in the previous month.

The major contributor to the contraction in exports was continued sluggishness in exports to Asia (an 8.3 percent annual drop), largely reflecting declines in exports of auto parts, semiconductor machinery, iron and steel, and semiconductors.

Nevertheless, exports to the United States (US) accelerated to 8.4 percent (YoY), thanks largely to increases in exports of ordinary machinery (such as semiconductor machinery), autos and aircraft, while exports to the European Union (EU) rose 2.2 percent (YoY), following three consecutive months of decline, driven by exports of autos.

Even though import volumes rose 6.7 percent (YoY), import value contracted largely because of lower import prices of crude oil, other commodities, and semiconductors, in tandem with weak global demand and softer outlooks for the global economy. Declines in imports of crude oil, petroleum products, non-ferrous metals, and semiconductors were partially offset by increases in imports of foodstuffs, computers, clothing and accessories, and other consumer goods.

Solid exports to the US reflected the movement of manufacturing facilities to the US in order to avoid repercussions from US-China trade tensions and possible downside effects from ongoing US-Japan trade talks.

However, slower global demand, particularly from China, and the recent yen appreciation are likely to weigh on Japan’s exports over the near term. The July Jibun Bank Manufacturing Purchasing Managers’ Index by IHS Markit indicated continued declines in export orders, which could mean a continued contraction in production and cautious approaches to fixed investment.

While rises in imports of foodstuffs partially reflected bad harvest due to rainy and cool weather, the free trade agreement with the EU and the Trans-Pacific Partnership have contributed to the increase in imports of foodstuffs, and the uptrend is likely to continue. IHS Markit expects front-loaded demand ahead of the consumption tax increase, scheduled for October 2019, to support increases in import volume for the third quarter of 2019.

US$1 = JPY106.579

Written by Lexy Nantu, Email: lexy@theinsiderstories.com