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Decline in Imports Drives Japan Surplus Higher

David Becker
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The Nikkei was able to gain traction on Wednesday following a better than expected trade balance which was released during trading hours. The deficit was somewhat smaller than expected at JPY909 billion. The consensus forecast was for a widening of the deficit to JPY1.189 trillion from JPY811 billion in April. Although exports fell which is not a good sign, imports for energy also declined. Traders will have to wait for revisions to determine if the large decline in imports was an anomaly.

Japan has been recording monthly trade deficits for nearly two years as imported energy offset exports. What is new in this report is that exports fell for the first time in fifteen months. The 2.7% y/y decline was twice the contraction the market expected. Simply put, foreign demand is not offsetting the weakness in domestic demand spurred by the April sales tax increase.

Exports to Asia, which account for a little more than half of Japan’s exports, fell 3.4% y/y. This is despite a small (0.4%) increase in exports to China. Japanese exports to Hong Kong, South Korea, Taiwan, and Singapore all fell, warning of the risk that the regional economy has slowed and the rise in oil prices cannot help matters. Japan’s exports to the US, its second largest trading partner, also fell. The 2.8% decline follows a 1.9% increase in April. The deficit would have been greater if not for another surprise.

Imports unexpectedly fell. The 3.6% y/y decline contrasts with consensus forecasts for a 1.8% increase. Crude oil imports collapsed by 15.1%. The decline in crude imports seems to be a function of seasonal maintenance and some extra stockpiling ahead of the sales and energy tax increase in April.

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