Japan Prime Minister Shinzo Abe gives his speech in World Economic Forum Annual Meeting 2019, at Davos, Switzherland. Photo: IMF

JAKARTA (TheInsiderStories) – Japan’ trade deficit widened faster than expected by 49.2 percent to JPY1.4 trillion (US$13 billion) in January on a non-seasonally adjusted basis. The trade deficit also expanded by 67.1 percent month on month (m/m) to JPY370 billion on a seasonally adjusted basis, marking the seventh consecutive month of deficit.

The larger-than-expected deficit reflected an 8.4 percent in annual basis (y/y) driven by sluggish exports to Asia. Drop in exports to China accelerated to 17.4 percent y/y (or 20.8 percent y/y in volume terms) from 7.0 percent y/y (13.8 percent y/y in volume terms) in the previous month while sluggish demand for electric machinery and semiconductor machinery also led to a contraction in exports to South Korea, Singapore and other Asian countries.

Although exports to the United States (US) rose 6.8 percent y/y thanks largely to increases in exports of autos, drugs, and construction and mining machinery, exports to the European Union fell 2.5 percent y/y mainly because of declines in exports of ships and some other items.

Imports declined 0.6 percent y/y in January, the first drop in 10 months, due largely to lower prices of oil and some other resources. Increases in imports of machinery and manufactured goods suggest domestic demand and production have not been significantly influenced by sluggish external demand yet.

Japan’ trade figures for January and February are usually disrupted by the Lunar New Year holidays of its Asian trade partners, said Harumi Taguchi, principal economist at IHS Markit. However, this year’ faster decline in exports was in line with the weakness in export orders that the Nikkei Japan Manufacturing Purchasing Managers’ Index by IHS Markit anticipated, as well as lower machinery tool orders from overseas.

Although solid exports to the US suggest the US economy remains sound, risks to further slowdowns of exports to many countries or regions remain skewed to downside, given the persistence of global uncertainties, particularly with regard to the US-China trade tensions.

While the industry outlook indicates that machinery orders from overseas could decline sharply in the first quarter of 2019, sluggish exports could suppress industrial production, weighing on real GDP growth in the first quarter. Persistently weak external demand could lead to cautious capital expenditure  plans for fiscal year 2019.

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

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