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May 1, 2017

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Japan trade deficit shrinks as energy imports fall

TOKYO--Japan's trade deficit narrowed in May as imports turned down for the first time in a year and a half, data showed Wednesday, but weaker shipments abroad helped keep the trade balance in the red.

The figures — which suggested the world's number three economy was slowing — reflected a fall-off in spending after sales taxes rose in April, a move seen as crucial to paying down a huge national debt but one that threatened to stall the nation's budding economic recovery.

The trade deficit has ballooned since the 2011 Fukushima atomic crisis forced the shutdown of nuclear reactors and a shift to pricey fossil-fuel imports to plug the energy gap. Nuclear once supplied more than a quarter of Japan's power.

"The weaker yen had contributed to the widening of the trade deficit last year, as it pushed up import prices by more than it raised the value of exports," said Marcel Thieliant of Capital Economics.

"However, the boost to trade values from the weak yen is now clearly over."

On Wednesday, the finance ministry said Japan's May trade deficit narrowed 8.3 percent from a year ago to 909 billion yen (US$8.9 billion), marking the 23rd consecutive monthly shortfall.

Imports were down 3.6 percent to 6.5 trillion yen, the first on-year drop in 19 months as crude oil shipments fell by nearly 20 percent in volume terms.

Domestic demand for gasoline and other products jumped in the months ahead of the consumption tax rising to 8.0 percent from 5.0 percent, as millions of shoppers dashed to stores before prices went up.

May exports fell 2.7 percent to 5.6 trillion yen, the first downturn in over a year as demand for refined fuel and vehicles fell overseas.

Eyes on Bank of Japan

Wednesday's data were the first major economic figures published since the Bank of Japan (BOJ) wrapped up a two-day policy meeting last week with policymakers holding fire on an expansion of the BOJ's stimulus program.

Japanese central bankers have held steady since launching their huge monetary easing blitz in April last year as they gauge the impact of the sales tax hike.

On Friday, the BOJ acknowledged that consumer demand and factory output had taken a hit, but insisted that the economy was seeing a "moderate recovery."

Overseas economies, particularly in major industrialized nations, were also recovering "albeit with a lackluster performance still seen in part," it said.

The weak exports in May, however, were likely to raise further questions about the strength of demand.

Japan's second-quarter economic growth is expected to come in weaker than the 1.6 percent expansion between January and March as the pre-tax spending rush gives way to caution among ordinary Japanese who face higher prices and creeping inflation.

If the lackluster trade figures are followed by other signs of a slowdown, such as a further drop in factory output or a fall in consumer spending, it could set off a renewed focus on the BOJ's timeline for further easing.

Last month, the International Monetary Fund raised the prospect of a longer-than-expected timeline for the central bank's stimulus plan.

"The current aggressive pace of monetary easing may need to be maintained for an extended period," the Washington-based Fund said in its annual review on Japan's economy.

It added that the "BOJ should act quickly if actual or expected inflation stagnates or growth disappoints."

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