Photo by Government of Japan

By Harumi Taguchi, Principal Economist, IHS Markit

Key Points:

Ÿ   Japan’s trade surplus widened by 37.7% year on year (y/y) to JPY670.2 billion (USD5.2 billion) in September on a non-seasonally adjusted basis, while the surplus narrowed by 22.0% compared to August to JPY240.3 billion on a seasonally adjusted basis.

Ÿ   The y/y improvement reflected growth in exports (up 14.1% y/y), which  outpaced the import growth (up 12.0% y/y), even though export volume growth softened to 4.8% y/y. Major contributors to the y/y growth in exports were power generation machinery, semiconductors and related machinery, and organic chemicals.

Ÿ   The y/y growth in imports largely reflected higher prices of oil and other commodities, as well as solid increases in imports of semiconductors and related machinery. That said, import volumes fell 0.3% y/y in September, the first decline in seven months, due largely to declines in the import of mobile phones, LNG, iron ore and other raw materials.

IHS Markit Views:

The September results suggest that net exports will drive real GDP growth in the third quarter, offsetting weak consumer spending due to adverse weather. IHS Markit maintains its view that Japan’s trade surplus will likely continue over the near term, although geopolitical risks remain concerns.

While the y/y increase in both exports and imports is likely to soften gradually because the upside from therapid yen depreciation in late 2016 is likely to ease, the stronger global economy and ongoing demand for semiconductors and related products will support export growth. (Although, given that our near-term forecast is that the yen will depreciate at a milder pace, we expect the US-Japan monetary policy differential to lead to further yean depreciation.) These upside factors will be partially offset by import growth due to improved domestic demand.