Japan's Premier Shinzo Abe - Photo by Japan Government

by Harumi Taguchi, principal economist at IHS Markit

Key Points:

Ÿ   Japan’s trade surplus fell by 40.7% year on year (y/y) to JPY 285 billion (USD 2.5 billion) in October on a non-seasonally adjusted basis, but widened by 21.1% from the previous month to JPY323 billion on a seasonally adjusted basis. The y/y decline was due to an acceleration for imports, which rose 18.9% y/y and outpaced a 14.0% rise for exports.

Ÿ   Major contributors to the steady increase for exports were autos, semiconductors, organic chemicals and semiconductor-related machinery, due largely to solid growth of exports to Asia, particularly China and the European Union. That said, growth for export volumes softened to 3.8% y/y, largely because of weaker export volumes to the US (1.7% y/y).

Ÿ   However, higher prices for oil and other fuels buoyed imports of mineral fuels, which contributed 6.2 percentage points to y/y growth of imports. An on ongoing uptrend for production supports the continuation of a solid increase for imports of semiconductors, while seasonal needs pushed up imports of clothes.


IHS Markit expects US-Japan interest rate differentials to lead to yen weakening, but the y/y effects from yen weakening a year earlier is likely to ease over the near term. This will soften y/y growth for both exports and imports.

IHS Markit maintains its view that Japan’s trade surplus will continue over the near-term. That said, further increases for oil prices and ongoing improvements for domestic production will probably weigh on further increases, even though global demand is likely underpin an uptrend of exports.