Japan Trade Balance Recovers From Record Low, But Pressure Still On

By Ambar Warrick

Investing.com-- Japan’s trade deficit narrowed more than expected in September, data showed on Thursday, as a bigger-than-anticipated jump in exports helped offset some pressure from increasingly more expensive commodity imports.

The country’s recent reopening to tourists after a two-year COVID lockdown is also expected to further benefit its trade balance in the coming months.

Japan’s trade balance was a deficit of 2.09 trillion yen ($1.4 billion) in September, less than expectations for a deficit of 2.17 trillion yen and down from August’s record-high reading of 2.82 trillion yen, data from the Ministry of Finance showed.

The improvement was aided largely by a bigger-than-expected jump in exports, which rose 28.9% in September, against expectations of 27.1%. The reading also raced past August’s figure of 22%. Strong shipments of automobiles, electronic components, and machinery were the biggest contributors to the rise, as Japan’s manufacturing sector continued to log strong growth despite headwinds from elevated raw material costs.

But offsetting this, imports grew a bigger-than-expected 45.9% in September, driven largely by fuel imports. The cost of petroleum imports more than doubled during September, driven largely by volatility in oil markets and further depreciation in the yen.

Still, overall growth in imports was lower than August’s reading of 49.9%.

A steadily weakening yen is the biggest headwind to Japan’s trade balance this year, given that it makes the import of goods substantially more expensive. The currency slumped to a 32-year low this week amid a widening gap between local and international interest rates.

The yen showed little reaction to the trade data, and was trading just shy of 150 to the dollar.

Japan’s economy is expected to face increased headwinds from rising inflation this year. Data due on Friday is set to shine more light on that front, with inflation expected to have remained elevated through September.

Despite inflation trending near eight-year highs, the Bank of Japan has given no indication that it plans to raise interest rates from record lows in the near-term. But further declines in the yen may spark more intervention in currency markets by the government, as seen in late-September.