Prime Minister Shinzo Abe and His Cabinet - Photo by Prime Minister Office

JAKARTA (TheInsiderStories) – High oil prices and weak external demand are likely to persist over the near term, and greater United States (US) – China and US – Japan trade tensions increase downside risks for Japan’s exports.

The Samurai country’ trade balance recorded a deficit of JPY445 billion (US$400 million) in August following a deficit of JPY232 billion on a non-seasonally adjusted basis in July, reflecting a 15.4% percent year-on-year (y/y) rise for imports which outpaced a 6.6 percent y/y rise for exports.

The seasonally-adjusted trade deficit widened by 86.0 percent month-on-month (m/m) to JPY190 billion.

Major contributors to annually growth for exports were exports of semiconductor machinery (largely due to a surge of exports to China), autos (particularly for exports to the European Union and China), and ships.

Although the improvement for exports largely reflected a rebound for exports to the US (up 5.3 percent y/y) and a continued solid increase for exports to China (up 12.1 percent y/y), overall export volumes rose 1.1 percent y/y following a 0.9 percent rise in the previous month.

The sustained increase for imports was largely due to higher prices of oil and other resources. Imports of mineral fuels contributed 9.5 percentage points to the y/y increase for imports, while surges for imports of mobile phones and aircraft were also major factors for the brisk growth for imports.

While higher oil prices and weak external demand are becoming more subdued, Harumi Taguchi, Principal Economist, IHS Markit said Japan’s trade balance in the near term and export downside risks are mounting on the back of escalated trade tensions between the US and China, Japan’s two largest trade partners.

“Although we have factored weak export orders into our assumptions, greater tariff battles between the US and China and their repercussion for Asia could suppress Japan’s exports further,” said her.

The US trade deficit with Japan is also growing concerns for Japan, she adds. The US will continue to pressure Japan to negotiate a bilateral trade agreement to increase imports of US products, particularly agricultural products, while the US could impose additional tariffs on auto imports from Japan.

Although Japan’s trade surplus with the US continued to narrow in August, thanks to declines for auto exports and surges in imports of aircraft, natural gas, and coal, the US-Japan trade negotiations and talks between US President Trump and Japan’s Prime Minister Abe are unlikely to progress smoothly over trade issues.

Email: linda.silaen@theinsiderstories.com