By Harumi Taguchi, principal economist at IHS Markit
Ÿ Japan’s trade surplus rose 32.1% in March year on year (y/y) to JPY797 billion (USD 7.4 billion) on a non-seasonally adjusted basis while the balance turned to a surplus of JPY119 billion on a seasonally adjusted basis.
Ÿ Imports declined for the first time in 15 months by 0.6% y/y while exports continued rising moderately at 2.1% y/y, which largely contributed to the improvement in the trade balance.
Ÿ Although the weakness in exports was due partially to the stronger yen (up 6.3% y/y), rebounds in exports to Asia drove the increase, offsetting sluggish growth in exports to the US (0.6% y/y) and the EU (0.3% y/y). Major contributors to the increase in overall exports were autos, semiconductor machinery and metal working machinery.
Ÿ The decline in imports largely reflected the 6.0% y/y drop in imports from Asia. While imports of mineral fuels, such as petroleum products and liquid natural gas, continued to rise, weaker imports of cloth and accessories and telephone sets as well as declines in imports of coal, fish, electrical machinery (such as semiconductors and audio and video hardware) and manufactured goods (such as manufactured of metal products, textiles, yarn and fabrics, and non-metallic mineral ware) contributed to the drop in imports.
IHS Markit Views:
The March results not only suggest sustained demand for machinery, but also warn of waning momentum for both exports and imports, particularly with electrical machinery and manufactured goods. Since the IHS Markit global electronics purchasing managers’ index signaled slower growth in new orders in March, weakened demand for electronics could weigh on near-term exports to Asia as well as imports from Asia.
IHS Markit does not expect serious trade wars and forecasts that Japan’s trade surplus will likely continue over the near term, while recent yen appreciation could lead to declines in exports as well as imports. That said, the US introduction of higher import tariffs on steel and aluminum and trade friction with China remain concerns with respect to sustained external demand.