Japan economy: Quick View – Trade deficit swells to a new record in January

Event

The value of merchandise exports continued to rise in January, expanding by 9.5% year on year. However, import growth was much faster, continuing a trend that has been in place since June 2013. A 25% surge in import values resulted in record monthly trade deficit of ¥2.8trn (US$27.2bn) on a non-seasonally adjusted basis.

Analysis

Such strong import gains suggest that first-quarter economic growth is likely to fall short of the high expectations shared by the government and Bank of Japan (the central bank). January is the weakest month for Japan’s trade balance, as the country’s extended New Year’s holiday impedes exports more sharply than imports. However, the trade imbalance in January reveals structural weakness, too. The seasonally adjusted measure of trade showed exports falling by 3.5% month on month, while imports rose by 4.7%.

Imports were elevated by three factors: the yen’s depreciation, greater reliance on imported fossil fuels following a shutdown of domestic nuclear power facilities, and intensifying consumer demand (especially for electronics) ahead of a planned increase in the consumption tax rate in April. Mineral fuel imports jumped by 22.6% year on year in January, but other import categories also recorded strong gains, including machinery (up by 37.4%), transport equipment (up by 41%) and manufactured goods (up by 29%), indicating a strengthening in domestic demand. Import prices advanced by 15.7% in January, but volume gains of 8% accounted for one-third of the jump in overall import values.

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