Japan’s trade surplus narrows in April; correction of yen weakening to weigh on surplus over near term

By Harumi Taguchi, Principal Economist, IHS Markit

Key Points:

Ÿ   Japan’s trade surplus for April decreased by 40.6% year on year (y/y) to JPY481 billion (USD4.3 billion) on a non-seasonally adjusted basis, and also by 8.2% month on month (m/m) to JPY97.6 billion on a seasonally adjusted basis, recording the narrowest surplus since December 2015.

Ÿ   Imports continued to increase, up 15.1% y/y, while export growth softened to 7.4% y/y from 12.0% y/y in the previous month.

Ÿ   The milder growth in exports was due to weaker increases in export volumes (+4.1% y/y) and prices (+3.2% y/y), while the yen has appreciated (+0.3% y/y). Nevertheless, major contributors to the increase in exports were semiconductors and semiconductor hardware as well as iron and steel products, which largely driven by exports to Asia (+12.2% y/y).

Ÿ   Solid growth in imports largely reflected higher prices and volumes of mineral fuels, which contributed 9.1 percentage points of the increase, and iron and steel products. A surge in imports of mobile phones (+95.8% y/y rise) was also a major contributor to the increase.


IHS Markit Views:

The yen strengthening and solid increases in imports of mineral fuels are likely to continue to help narrowing Japan’s trade surplus with the US. That said, the JPY587 trillion surplus with the US suggests the trade imbalance will be a major topic of the US-Japan economic dialogue.

While ongoing recovery in external demand, particularly for semiconductor and related machinery, are likely to support export growth and IHS Markit expects the US Fed’s policy rate hike to be a factor driving the yen weakening, the yen’s recent appreciation will weigh on export prices over the near term. On the other hand, solid growth in imports of mineral fuels is likely to continue until y/y effects in import prices soften in late 2017.