By Harumi Taguchi, Principal Economist, IHS Global Insight
Key Points:
Ÿ Japan’s trade surplus for October increased by 374% year on year (y/y) to JPY496 billion (USD4 billion) on a non-seasonally adjusted basis, and rose 32.3% from the previous month to JPY474 billion on a seasonally adjusted basis. The y/y improvement reflected a continued decline in imports (16.5% y/y), although the contraction in exports widened to 10.3% y/y.
Ÿ Exports fell 1.5% y/y following two consecutive months of increase, reflecting weaker export volumes for all three major regions (the US, European Union and Asia). Major contributors to the decline were autos, iron and steel products, mineral fuels, metal working machinery and other ordinary machinery.
Ÿ Mineral fuels remained major contributors to the decline in imports but theirnegative contribution narrowed to 5.3 percentage points, nearly a half of 10.1 percentage points in July, largely because of easing y/y effect of low oil prices. However, the yen strengthening of 14.7% y/y and weak domestic demand continued to drive declines in a wide range of imports, including clothing and accessories, scientific/optical instruments, semiconductors and foodstuffs.
IHS Global Insight Views:
The recent yen’s softening, if sustained, and the somewhat modest uptrend in export volumes will help a recovery of Japan’s exports, which will likely help extend the trade surplus. While imports will also gradually improve, weak domestic demand will partially offset upside from easing y/y effects of low oil prices and the yen softening.
Nevertheless, further improvement in the trade surplus will largely depend on the sustainability of an uptrend in external demand. It remains unclear whether the Trans-Pacific Partnership (TPP) can be expected to gain traction under the Trump Administration and/or whether a significant shift in US trade policy from a greater use of countervailing tariffs could harm for trade in Asia; however, increased spending for infrastructure in the US could be a benefit for Japanese exports.