Global uncertainties could weigh on recovery
By Harumi Taguchi, Principal Economist, IHS Global Insight
Key Points:
Japan’s trade surplus for December increased by 361.6% year on year (y/y) to JPY641 billion (USD5.6 billion) on a non-seasonally adjusted basis, but declined 23.5% from the previous month to JPY356 billion on a seasonally adjusted basis. The trade balance recorded a surplus of JPY4 trillion for 2016, the first surplus since 2010.
The y/y improvement for the trade balance largely reflected a recovery in exports, which rose 5.4% y/y. It was the first positive growth since September 2015, thanks to an increase in trade volume (8.4% y/y). Export volume to Asia showed a solid increase (13.4% y/y), thanks largely to China (20.7% y/y). Althoughexport volume to the US (5.2% y/y) and European Union (3.5%) increased, declines in export prices limited the impact, despite the yen’s weakening.
Import continued to fall, by 2.6% y/y, although the weak yen and higher oil and other commodity prices helped ease the decline from the 8.8% y/y drop in the previous month. Increases in imports of coal, aircraft, mobile phones and motor vehicles were offset by declines in imports of liquid national gas, medical products, clothing and accessories and other various product groups.
IHS Global Insight Views:
The December results suggest global demand continued to improve and that this spurred investment in machinery. That said, the sustainability of external demand remains the key for the Japan’s export recovery, because of emerging protectionism and uncertainties in the US trade policy, given President Donald Trump’s repeated concerns about Japan’s auto exports and trade surplus with the US. Uncertainties over trade friction could lead to the yen strengthening, and uncertainties could weigh on corporate decisions about increasing investment and wages even if corporate profits improve.
Nevertheless, the improvement in exports is likely to drive real GDP growth in the fourth quarter 2016. Japan’s trade balance is poised to remain in surplus in 2017, although higher oil prices will suppress scale of the surplus.