President Joko Widodo meets with Japanese PM Abe. (Photo source : Cabinet Secretary)

JAKARTA (TheInsiderStories)–Improved trade balance lifted Japan’s current-account surplus in June 2018, IHS Markit reported in a press release on Wednesday (8/8).

Japan‘s current account surplus rose 27.1% year on year (year on year/yoy) to JPY1.7 trillion (US$14.8 billion) on a non-seasonally adjusted basis in June. The surplus fell 4.7% from the previous month to JPY1.7 trillion on a seasonally adjusted basis, declining for the second consecutive month. 

The year on year growth reflected a 59.8% (or JPY307 billion) increase in the goods balance, thanks to a 9.3% (yoy) rise in exports, while imports rose 4.9% (yoy). That said, export momentum softened as seasonally adjusted exports remained at the May level, following a 1.5% decline from the previous month. 

Although the continued increase in the number of visitors from abroad lifted the surplus in the travel balance, the service balance deficit rose by JPY108 billion to JPY175 billion, largely reflecting an increase in payments for research and development services. 

The primary income rose 11.8% (yoy) (or JPY62 billion) to JPY588 billion, although a rise in income from direct investment was largely offset by an increase in portfolio investment outflows, reflecting solid growth in corporate profits for the previous fiscal year. 

Principal Economist of IHS Markit Harumi Taguchi said in a press release that Japan’s current account is likely to remain in surplus over the near term, thanks to the uptrend in primary income. Outlooks for the yen’s weakening, reflecting widening US-Japan interest rate differentials, are likely to support tourism and primary income from foreign currency assets, while the Bank of Japan’s aggressive monetary easing will keep residential investment in foreign currency assets.

That said, softer demand and higher oil prices are likely to suppress the trade surplus over the near term. The Nikkei Japan Manufacturing Purchasing Managers’ Index, calculated by IHS Markit, suggests a decline in export orders, which could continue to weigh on exports over the near term. In addition, repercussions from global tensions, particularly US-China trade tension, are emerging as risks to slow down Japan’s exports.

The results of US-Japan trade talks could also temporarily reduce Japan’s trade surplus from the US, although US policies will encourage Japanese companies to invest in the US to increase local production, and in turn, increase primary income in the medium term.