Japanese export values rose on the year at a slower pace in March amid softer global demand even though trade flows appeared to have returned to normal after January's lunar new year holiday shutdowns in some parts of Asia, data released Thursday by the Ministry of Finance showed. The pace of imports also decelerated, leading to a narrower trade deficit for the second straight month after hitting a record shortfall in January.

Shipments to China, the key export market for Japanese goods, posted their fourth straight year-over-year decline in March, led by declines in autos and auto parts as well as iron and steel. The world's second-largest economy is gradually recovering from the sluggish activity caused by Beijing's strict zero-Covid policy.

The Econoday Consensus Divergence Index stood at plus 24, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the index was at plus 29.

Export values rose 4.3 percent on the year in March for the 25th straight rise, with the pace of increase decelerating from 6.5 percent in February but up from 3.5 percent in January. Exports surged 25.3 percent in October 2022 to a record high ¥9.0 trillion. The latest figure was higher than the median forecast of a 2.4 percent rise (forecasts ranged from 1.0 percent to 8.8 percent increases). The slow January figure was due to 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 China, Taiwan and Hong Kong during their lunar new year holidays.

Amid slowing global economic growth, export volumes fell 8.1 percent on the year for the sixth straight drop after falling 7.9 percent in February.

The increase in March export values was led by the recent pickup in automobile shipments, thanks to easing global supply constraints, and solid demand for semiconductor-producing equipment and non-ferrous metals. Exports of auto parts and plastics continued to dip.

Import values rose 7.3 percent on the year in March for the 26th straight increase, coming in lower than the median forecast of a 12.1 percent rise. It followed increases of 8.3 percent in February, 17.8 percent in January and a 53.6 percent jump to a record high ¥11.17 trillion in October last year. The increase was led by higher prices for coal, crude oil and refined petroleum products, compared to year-earlier levels. Imports of drugs and non-ferrous metals fell sharply.

Import volumes dropped 2.6 percent on year in March for the fifth straight decrease after dipping 7.8 percent in January.

The trade balance came to a deficit of ¥754.5 billion in March. It marked the 20th straight month of a shortfall, narrowing further from a revised deficit of ¥898.1 billion in February and a record high deficit of ¥3,506.4 billion in January, and compared to a surplus of ¥609.8 billion in February 2022. The gap was much narrower than the consensus forecast of a ¥1.298.9 billion deficit (¥1.3 trillion).

In fiscal 2022 that ended last month, exports rose 15.5 percent to a record ¥8.82 trillion for the second straight annual increase after rising 23.6 percent in fiscal 2021, falling 8.4 percent in fiscal 2020 and dipping 6.0 percent in fiscal 2019. Imports surged 32.2 percent to a record ¥9.58 trillion, also for the straight annual rise, after rising 33.5 percent in fiscal 2021, falling 11.3 percent in fiscal 2020 and slipping 6.3 percent in fiscal 2019. The fiscal 2022 trade deficit hit a record high of ¥21.73 trillion, compared to a deficit of ¥5.59 trillion in fiscal 2021, a ¥998.6 billion surplus in fiscal 2020 and a ¥1.29 trillion deficit in fiscal 2019.

Japanese exports are forecast to show slower year-over-year growth of 2.4 percent in March amid weaker global demand after a 6.5 percent rise in February while imports are seen rising 12.1 percent versus 8.3 percent. That would result in a 20th straight monthly trade deficit, of ¥1,298.9 billion (¥1.30 trillion) in March, following a deficit of a revised ¥898.1 billion in February and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) in January.

On the month, real exports are expected to post a decline in March as last year's aggressive credit tightening by major central banks are slowing demand in the US and Europe. The focus is on whether China's reopening demand is supporting Japanese exports at a time when the global semiconductor market is softening.

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.