Japan’s Massive Trade Surplus

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Japan’s first trade surplus was reported in March 2015 at 229.3 billion yen above the market expectation of 44.6 billion yen. Exports rose by 8.5% on account of weaker yen while imports fell by 14.5%, on the back of the falling oil prices. Moreover, Japan’s trade balance was negative for 49 months out of the 58 months from the March 2011 earthquake and Tsunami, leading the government to shut off its nuclear reactors which enhance their reliability on energy imports. In December 2015, Japan reported trade surplus of 140.2 billion yen as compared with a deficit of 371.3 billion yen in November and a deficit of 665.6 billion yen in December 2014. The sharp improvement in trade surplus was reported on the back of 18% annual drop in import, which offset the 8% drop in exports. Although, the exports had fallen on account of slowdown in China and weakness in the global economy, the commodity prices were easing more than the expectation, which resulted into fall in import bills.

 

The trade surplus however swings into deficit of 645.9 billion yen in the month of January 2016 on account of fall in exports as well as imports. Economy’s export recorded substantial fall of 12.9% on a year on year basis on account of fall in exports to China by 17.5% and to the US by 5.3%. The weaker demand for machinery and manufactured goods resulted in the fall. Imports however fell by 18% on account of 6% fall in import from China and 43.5% fall in import from Middle East. In February, the Japanese economy reported trade surplus of 242.8 billion with exports falling by 4% and imports by 14.2%.

 


 

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The trend continued in March 2016 and Japan reported trade surplus of 754.9 billion yen Vs 229.3 billion in March 2015.  Exports dropped 6.8% on account of currency appreciation while that also left a positive impact on imports, which fell 14.9%. Moreover, the fall in import bill was also supported by fall in oil prices which on an average declined by 21% in March 2016 from the same month in 2015, reducing Japan’s fuel costs substantially. Japan is dependent on overseas supply for almost all its energy. The fall in oil prices was on positive sign while strengthening of Yen adversely impacted exports of the economy.

 

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Japan’s Balance of Trade Report (Source: Trading Economics)

 

In April 2016, the third straight month, Japan recorded trade surplus of 823.47 billion yen compared with 58.34 billion yen deficit in same month earlier year. It was the largest since March 2010 as exports dropped less than its imports. Exports declined by 10.1% while imports declined by 23.3% from a year earlier. The month noted 49.3% dip in imports of mineral fuels.

 

Future outlook

Currency movement as well as the commodity prices, mainly oil, largely influence Japan’s trade balance. Around 90% of Japan’s energy requirements are met through imports, and rise in oil prices and depreciation of yen would likely to reverse the trend bringing trade balance into deficit. The USD/JPY recovered over 3.2% in this month (as of May 26, 2016) after falling over 5.5%, 0.1% and 6.9% in the month of April, March and February 2016. Although the weak yen would be favorable for exports but global slowdown in demand would mark the gain coming from yen depreciation. As forecasted by trading economics.com, Japan is likely to witness trade deficit in Q3 and Q4 of FY16. However, there may be a trade surplus in Q1FY17.  Current and future prices of crude and yen movements would be the major deciding factors going forward.

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Japan Future Outlook for 2016 to 2020 (Source: Trading Economics)


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