Japan logs trade deficit for 11th month on energy, weak yen

Japan logged a trade deficit for the 11th consecutive month in June, as higher energy prices and a weaker yen continued to inflate the nation’s import bill. 

The trade deficit narrowed to 1.38 trillion yen ($10 billion) from 2.39 trillion yen, which was the most since January 2014, the finance ministry reported Thursday. Imports rose 46.1% from a year ago, with crude oil, coal and liquid natural gas leading the increase as oil and gas prices continued to surge from year-ago levels. Economists had forecast a 46.3% gain. 

Exports increased 19.4%, compared with a 17% forecast by analysts, as shipments of mineral fuel, steel and semiconductor parts jumped from the previous year. The value of shipments gained 4% from May. 

While the deficit narrowed from the previous month, it deteriorated sharply from a surplus a year ago. The shortfall was the third worst deficit this year and on a seasonally adjusted basis, it was the largest since 2014. The continued deficit is likely to keep downward pressure on the yen.

“The jump in imports isn’t driven by strong demand at home, but by cost-push factors,” said economist Takeshi Minami at Norinchukin Research Institute. “Exports fell in volume and can slow down further, especially to the US and Europe as the global economy decelerates.”

Japan, which relies on energy and food from overseas, has seen its import costs soar due to the war in Ukraine and supply disruptions including those tied to China’s virus lockdowns. As commodity prices remain high and the yen stays weak, trade deficits are likely here to stay. June trade data showed that crude oil imports from Russia also fell to zero for the first time since the war began.

Exports may also suffer from a global economic slowdown as major economies try to cool rampant inflation and demand by raising interest rates. Central banks across the globe have been speeding up their rate hike path, with more and more surprising with jumbo increases.

What Bloomberg Economics Says...

“Looking ahead, we expect the trade deficit to narrow slightly in July. The import bill is likely to increase at a slower pace due to softer commodity prices. Meanwhile, Shanghai’s reopening from lockdowns should support exports further.”

--Economist, Yuki Masujima

Later on Thursday, the Bank of Japan is expected to maintain its monetary easing policy framework, highlighting its outlier status among global peers. The BOJ’s dovish stance has helped the yen fall to 24-year lows versus the dollar, making imports more expensive. 

Given that the trade data showed that the jump in inbound shipments is still driven by cost-push factors rather than domestic demand, “from the BOJ’s standpoint, that means they will need to keep up with easing,” Norinchukin’s Minami said.

For the trade data, the average exchange rate was 130.35 yen to the dollar, 19% weaker than a year ago. This month the yen briefly sank past 139 for the first time since 1998.

Kishida is planning to take additional steps to help people deal with the rising costs of living, following an earlier round of price relief measures. Inflation remains relatively limited in Japan, but it’s hitting households with costlier essential items while wage gains continue to trail price increases.