Weaker Exports to Asia Drive Japan’s Trade Deficit in May

Bank of Japan Maintains Negative Interest Rate

JAKARTA (TheInsiderStories)Japan’s trade balance turned to a deficit of JPY967 billion (US$ 5.6 billion) in May on a non-seasonally adjusted basis, rising 67.5 percent year on year (y/y). The deficit also expanded 2.6 times from the previous month to JPY601 billion on a seasonally adjusted basis, reaching the largest deficit since February 2015.

Exports continued to decline, moving down 7.8 percent y/y, mainly led by the 12.1 percent y/y drop in exports to Asia (particularly to China and ASEAN nations). Contraction in exports to the EU also accelerated, to 7.1 percent y/y.

Major contributors to the decline in exports were semiconductor machinery, auto parts, iron and steel products, and nonferrous metals in tandem with repercussions from the US-China trade tensions.

Imports also declined 1.5 percent y/y on drops in imports of liquid natural gas, coal, organic chemicals and semiconductors, partially because of weak production. That said, the softer pace of contraction than that of exports partially reflected increased imports of crude oil, autos and aircraft.

Japan’s exports are likely to decline over the near term. The weaker Nikkei Japan Manufacturing Purchasing Managers’ Index by IHS Markit partially reflected sluggish export orders.

The index has remained below 50 for six months. Downside risks remain unless the US-China trade talks make positive progress.

The continued increase in exports to the US (up 3.3 percent y/y in May) could partially reflect the transfer of production to the US and rising investment in the US to avoid repercussions from the US-China trade tensions.

That said, the widening trade surplus with the US could lead to greater pressure to increase imports from the US, particularly for agricultural products, and suppress exports, particularly of autos, in the coming the US-Japan trade talks, which will probably be held after the general election in July.

Written by Willy Matrona, Email: theinsiderstories@gmail.com