Japan’s trade gap narrows as fuel import costs ease

Japan’s trade deficit narrowed for the second month in March, as the price of fuel eased and brought down import costs.    

The trade gap shrank to 754.5 billion yen ($5.6 billion) from a revised 898.1 billion yen in February, the finance ministry reported Thursday. Economists had forecast a 1.29 trillion yen shortfall. 

Imports grew 7.3% from a year ago, the smallest gain in two years, as a firmer yen and falling commodity prices including oil curbed import costs. Exports were up 4.3% from a year earlier, led by car shipments.

While smaller than the earlier month, Japan’s deficit has extended its streak to 20 months and is seen weighing on the country’s recovery prospects. The BOJ holds a monetary policy meeting next week, the first under Governor Kazuo Ueda, amid speculation over when it will adjust or dismantle its current ultra-easy policy. 

BOJ officials are wary of changing or scrapping their yield control stimulus so soon after the banking crisis overseas, according to people familiar with the matter.   

The latest data also comes amid concerns over the global economic slowdown. Global central banks have been raising interest rates to combat inflation, although their tightening cycles are seen winding down. Recent economic indicators, including a steep drop in US factory data, have signaled a cooling in business activity. 

March exports to the US rose 9.4%, the weakest since October 2021, while the value of shipments to the EU grew 5.1%, the smallest gain since February 2021. Economists have said Japan’s exports could slow further in the coming months as higher borrowing costs bite.

“I think the BOJ has been a little optimistic in its assessment of exports so far. The bank has been assessing that exports are picking up or improving, but it will be difficult to keep that view,” said Taro Saito, head of economic research at NLI Research Institute. 

March exports to China fell 7.7%, but the pace of decline was slower than before amid signs of a recovery in the region’s biggest economy. Data earlier this week showed China’s gross domestic product grew at a faster pace than expected by analysts.