Japan’s Prolonged Trade Gap Adds Pressure to Falling Yen

(Bloomberg) – Japan’s trade deficit extended its longest streak of red ink since 2015 as the weaker yen pushed up the import bill, an outcome that will weigh on the economy and fuel further weakness in the economy. the currency.

Bloomberg’s Most Read

The trade deficit topped 2 trillion yen for a second consecutive month, although it narrowed to 2.09 trillion yen ($14 billion) from the record deficit of 2.82 trillion yen the previous month. The result compared to economists’ forecasts for a discrepancy of 2.15 trillion yen.

Imports rose 45.9%, slightly more than analysts expected, as the cost of purchasing crude, coal and LNG soared from a year earlier. Exports rose 28.9%, driven by auto parts and woodchips. Analysts had forecast a 26.6% increase.

While an increase in shipments to China, the United States and Europe is good news for major Japanese exporters, the prolonged trade deficit will weigh on Japan’s recovery from the pandemic.

The deficit will dampen economic growth while soaring energy and food import costs could amplify the impact by slowing domestic consumption. Persistent deficits will also reinforce yen weakness, further complicating Japan’s economic outlook.

“The trade deficit adds strain to the economy when it lacks momentum,” said economist Takeshi Minami of the Norinchukin Research Institute. “It is not just monetary policy, but also the trade deficit that is keeping the yen under downward pressure. As the deficit grows, it can also make the nation’s economic power appear to be waning.

To counter the impact on businesses and consumers, Japan is developing an additional economic stimulus package this month, including support for households hit by rising inflation.

A second supplementary budget that will help fund the package would include 10 billion yen in grants to help companies increase their exports, in a bid to take advantage of the weak yen.

According to the trade report, exports to the United States were up 45% in September from a year ago, while those to China were up 17%. Shipments to Europe increased by 33%.

The improved numbers show the opposite benefits of the weaker currency, although further gains also hinge on continued growth in the global economy as fears grow over the impact of rising interest rates around the world .

What Bloomberg Economics says…

“Looking ahead, we expect the trade deficit to widen again in October as weak global demand limits export growth.”

— Yuki Masujima, Economist

To read the full report, click here

Prime Minister Fumio Kishida also said he would launch relief measures to counter rising electricity bills early next year. He said petrol subsidies will also be maintained beyond January and natural gas bill relief will also be introduced.

Trade data showed the impact of the lower yen. The average exchange rate was 139.81 yen per dollar, 27% less than a year earlier. The currency is hovering just below the 150 mark on Thursday morning.

The fall in the yen triggered Japan’s first intervention to support the currency in nearly a quarter of a century last month. Despite few actions from the authorities, the yen continued to slide to its lowest level in 32 years.

Government officials maintained their warnings that further intervention is likely in the event of excessive currency movements.

Still, the decline looks set to continue as the policy divergence between the US and Japan continues. Bank of Japan Governor Haruhiko Kuroda made it clear to parliament this week that the central bank would maintain its stance of continued monetary easing.

(Adds economist comment, more details)

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP

Comments are closed.