Growth in Japanese export values shrank to a single-digit percentage rise in January amid slowing global demand and suspended shipments during the Lunar New Year holidays in some parts of Asia, leading to a record high trade deficit, data released Thursday by the Ministry of Finance showed.

The pace of imports also slowed in line with softer international energy markets. The yen's recent modest rebound is helping ease high import costs.

Shipments to China, the key export market for Japanese goods, posted their second straight year-over-year decline as the world's second-largest economy has been hit by the resurgence of the pandemic since Beijing lifted its strict zero-Covid public health rules in December.

Rush shipments of goods ahead of the Jan. 22 lunar new year (compared to Feb. 1 in 2022) and suspended cargo handling and customs clearance in some Asian countries during new year holidays are believed to have caused a distortion to export and import patterns.

The Econoday Consensus Divergence Index stood at minus 28, below zero, which indicates the Japanese economy is performing worse than expected after outperforming earlier. Excluding the impact of inflation, the index was at minus 27.

Export values rose just 3.5 percent on the year in January for the 23rd straight rise, with the pace of increase decelerating further from 11.5 percent in December, 20.0 percent in November and 25.3 percent in October. It was firmer than the median forecast of a 0.1 percent fall (forecasts ranged from a 3.0 percent drop to an 8.5 percent rise). Export growth was also slow at 9.6 percent in January 22 due to irregular trade flows ahead of the lunar new year holidays. In October 2022, exports rose 25.3 percent to a record high of ¥9.0 trillion.

Amid slowing global economic growth, export volumes fell 11.5 percent on the year for the fourth straight drop after falling 7.1 percent in December, 3.6 percent in November, edging down 0.3 percent in October and rising 7.3 percent in September.

January export values were led by the recent pickup in automobile shipments, thanks to easing global supply constraints, and solid demand for construction and mining equipment as well as mineral fuels, all as seen in the previous month. Exports of auto parts, semiconductor-producing equipment and plastics fell in January.

Import values rose 17.8 percent on the year in January for the 24th straight increase, coming in lower than the median forecast of a 19.9 percent rise. It followed increases of a revised 20.7 percent in December, 30.3 percent in November and 53.7 percent to ¥11.18 trillion in October, which was a record high amount for the eighth consecutive month.

Import volumes fell 2.4 percent in January after falling 6.4 percent in December and 4.6 percent in November and rebounding 5.6 percent in October.

The increase in import values was led by higher prices for coal, crude oil and natural gas, compared to year-earlier levels, as seen in recent months.

The trade balance came to a record high deficit of ¥3.497 trillion (¥3,496.6 billion) in January. It marked the 18th straight month of a shortfall after a revised deficit of ¥1.452 trillion (¥1,451.8 billion) in December, surpassing the previous record high shortfall of ¥2.823 trillion in August 2022. It compares to a deficit of ¥2.199 trillion (¥2,199.4 billion) in January 2022. The gap was narrower than the consensus forecast of a ¥3.87 trillion (¥3,869.9 billion).

Growth in Japanese export values appears to have come to a halt in January, down 0.1 percent on the year for their first drop in 23 months, in step with slowing global demand and suspended shipments during the Lunar New Year holidays. The pace of imports is also seen slowing to 19.9 percent from December's 20.7 percent in line with softer international energy markets. The yen's recent modest rebound is helping ease high import costs.

The trade balance is forecast to hit a record deficit of ¥3.87 trillion (¥3,869.9 billion), marking an 18th straight month of a shortfall after posting a revised deficit of ¥1,451.8 billion in December. It would surpass the previous record high shortfall of ¥2.82 trillion in August 2022.

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.