Japan' economy could contracts 4.5 percent in this year due to the pandemic, said some observers - Photo by Prime Minister Office

JAKARTA (TheInsiderStories) – Japan’s trade balance recorded a deficit of JPY55 billion (US$500 million) in December on a non-seasonally adjusted basis, marking a deficit of JPY1.2 trillion in 2018. On a seasonally adjusted basis, the balance remained in deficit for the sixth straight month, but the deficit narrowed to JPY184 billion.

Sluggish exports to China, down 7.0 percent year on year (y/y) in value terms and down 13.8 percent y/y in volume terms, contributed to a decline in exports (down 3.8 percent y/y). Exports to the United States and European Union continued to increase by 1.6 percent y/y and 3.9 percent y/y, respectively.

While exports declined in a wide range of commodity, major contributors to the contraction were semiconductor machinery, semiconductors and mobile phones. Imports growth softened sharply in December, increasing just by 1.9 percent y/y, after a 12.5 percent y/y growth in the previous month.

This is largely because of weaker oil prices and slack demand for mineral fuels, partially thanks to relatively warm temperatures. While imports of mobile phones also dropped sharply, relatively solid growth in imports of ordinary machinery suggests the uptrend of fixed investment continued despite sluggish external demand.

December results signaled greater repercussions from the US-China trade tensions and exports could remain downbeat because of persistent global uncertainties, particularly if the US-China trade talks are not successful, rated by Harumi Taguchi, principal economist at IHS Markit. Accelerated declines in orders from China of machinery tools suggest that exports to China will likely remain sluggish over the near term.

Exports to ASEAN markets fell 1.9 percent y/y, but improvement is possible over the medium term if persistent US-China trade tensions encourage production shifts from China to ASEAN markets, along with benefits from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. However, near-term exports to ASEAN markets could decline further due to the weaker demand from China, which affects the supply chain in the ASEAN countries.

Japan’s trade surplus with the US continued to narrow for the sixth consecutive month, thanks largely to stronger imports of aircraft, crude oil and liquid natural gas, and weak exports of autos. This trend, with the recent correction in yen’s weakening, is favorable for Japan ahead of the US-Japan trade talks, although it will probably not allow Japan to avoid tough negotiations.

Written by Staff Editor, Email: theinsiderstories@gmail.com