Japan Trade Slips into Deficit, Yen’s Rise Clouds Export Outlook
Japan posted a trade deficit of $4.28 billion in July after reporting a surplus in June
TOKYO—Japan’s balance of trade fell back into the red in July, with the yen’s recent appreciation dimming the outlook for the nation’s exports.
Japan posted a trade deficit of 621.8 billion yen for July, equivalent to $4.28 billion. That followed a 224 billion yen surplus in June, Ministry of Finance data showed Wednesday, and compared with the 359.1 billion yen deficit expected by economists polled by data provider Quick.
In July, exports rose 10.3% from a year earlier thanks to chip-related demand, faster than June’s 5.4% increase. But the rise in imports outpaced that of exports, increasing 16.6% on demand for pharmaceuticals and telephones, the MOF data showed.
A recovery in domestic demand on the back of rising wages has contributed to the strength in imports, economists say.
Higher import costs, inflated partly by the yen’s weakness, have left the country’s trade balance in the red in recent years as Japan depends largely on imports for items including food and energy. Economists say the country is on its way to report another year of an annual trade deficit.
Meanwhile, any sustained recovery in exports may be slow due to uncertainties over the global economic outlook. In July, Japan’s exports to the U.S. and China showed solid growth, while shipments to Europe fell 5.3% from a year earlier.
“[Japan’s] exports are likely to be sluggish for the time being as the slowdown in overseas economies continues, while the downward pressure from the strong yen is being added,” said NLI Research Institute economist Taro Saito.
A stronger yen reduces the competitiveness of Japanese exporters as their products become relatively more expensive overseas. The yen has appreciated sharply against the dollar over the past month after the Bank of Japan raised interest rates in late July, and as expectations grow that the Federal Reserve will cut interest rates soon.
The yen rallied against the dollar after research papers from the Japanese central bank published on Tuesday highlighted the persistence of inflationary pressure in Japan, reinforcing the case for more rate hikes, CIMB research analysts led by Michelle Chia said in a note.
The yen stood around 145.40 to the dollar on Wednesday in Tokyo, compared with around 162 in early July.