Japan’s trade deficit tops ￥3tn, dragged mainly by weaker chipmaking shipments

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Japan’s trade deficit tops ￥3tn​

IMBALANCE: Export growth slowed to 3.5% last month, dragged mainly by weaker chipmaking shipments, while imports surged 17.8 percent due to high energy costs​

Bloomberg
Fri, Feb 17, 2023

Japan’s trade deficit surged to a record last month, as one-off factors, including the Lunar New Year holiday, dragged on exports amid a backdrop of a slowing global economy.

The trade gap jumped to ￥3.5 trillion (US$26.2 billion) from ￥1.45 trillion the previous month, topping ￥3 trillion for the first time in comparable data going back to the late 1970s, the Japanese Ministry of Finance reported yesterday.

The deficit far exceeded the previous record, although it was smaller than analysts’ estimates.

Export growth slowed sharply to 3.5 percent, with chipmaking equipment among the largest drags, in a sign of weakening global tech demand. The value of shipments to China sank 17.1 percent, dragged down by vehicles, auto parts and chip machinery. Exports to the US and Europe also grew at a weaker pace of 10.2 percent and 9.5 percent respectively.

Imports continued to show double-digit gains, with a 17.8 percent increase from a year earlier, as costly energy shipments continued to inflate the import bill. Japanese firms also likely tried to secure inventory from China before Lunar New Year celebrations.

“Japan’s exports are unlikely to show a strong pickup, so the overall economy will probably continue to have a lackluster recovery,” Norinchukin Research Institute chief economist Takeshi Minami said. “That will be a headache for the Bank of Japan when they consider normalization.”

China’s sudden turnaround on its pandemic policy has also meant a hit to Japan’s exports, as cases surged following the end of its “zero COVID” policy, causing disruption across the country.

Shipments to China and other Asian countries account for more than 50 percent of Japan’s overall exports.

The data also showed that the average exchange rate last month was ￥132.08 to the US dollar, 15 percent weaker than a year earlier. Although the weaker yen and higher oil prices — the two main factors behind the prolonged trade deficit — have faded compared with last year’s peak, their effects still appear to be lingering.

Another round of expanding import bills might trigger further price hikes. Nationwide inflation reached a 41-year high in December last year, as companies, especially food manufacturers, passed higher costs onto their products.

Accelerating inflation has eaten into consumers’ purchasing power, a trend reflected in household spending’s second straight month of declines in December.

“What’s not certain is how quickly the deficit will shrink as the global economy is expected to slow further from here,” Minami said. “There’s less pessimism emerging over the global economic outlook, but I would say the effect of a rapid tightening by central banks will hit harder in the coming months.”

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