Japan recorded a merchandise trade deficit of Y18.7 billion in August, down from a surplus of Y513.5 billion in July. Expectations had been for a surplus of Y202.3 billion. This is the third monthly trade deficit so far this year, although the balance for the year as a whole remains well in surplus.
The unexpected move into deficit in August reflects a sharper-than-expected drop in exports. Exports fell in year-on-year terms for the eleventh consecutive month in August, dropping 9.6 percent, compared with the consensus forecast for a fall of 4.8 percent. Ongoing strength in Japan's currency continues to weigh on external demand, with exports down in year-on-year terms to most major trading partners, including Asia (minus 9.4 percent), China (minus 8.9 percent), and the United States (minus 14.5 percent). Exports to the European Union, however, were close to flat in year-on-year terms.
Imports, meanwhile, have continued to drop at a faster pace, down 17.3 percent in August, close to the consensus forecast for a fall of 17.8 percent. This is the twentieth consecutive fall in year-on-year terms, with lower global oil prices remaining a major factor driving the weakness in headline imports.
Merchandise Trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.
Japan's merchandise trade balance measures visible trade and excludes services. Specifically it is the difference between imports of goods and exports of goods. A positive value indicates a trade surplus (exports exceed imports) while a negative value indicates a trade deficit (imports exceed exports). Movements in the trade balance reflect altered demand for Japanese exports which subsequently impact the yen's value and directly affect GDP growth because of the economy's dependence on trade.
The report gives insight into changing trends regarding Japanese trade. Such developments are especially important for Japan, which is an export-oriented economy that has historically experienced large trade surpluses and any change can have a dramatic effect on the domestic economy. Typically the headline number is the change from the previous year in yen along with the percentage change in exports and in imports from the previous year.
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