Japan posted a record trade deficit in August as energy imports soar

Japan posted a record trade deficit in August as energy imports soar

Written by Daniel Losink

TOKYO (Reuters) – Japan posted its largest-ever single-month trade deficit in August as imports surged on higher energy costs and a weaker yen, exposing the economy’s vulnerability to external price pressures.

The growing trade deficit highlights the fragile nature of Japan’s economic recovery which has so far remained largely unchanged despite the higher prices companies pay for imports exacerbated by the yen’s drop to a 24-year low and the rising prospect of a global slowdown.

Imports jumped 49.9 percent in the year to August, driven by coal and liquefied gas costs, and ballooned the trade deficit to 2.8173 trillion yen ($19.71 billion), the largest deficit ever.

The Finance Ministry data showed that import gains were larger than the average market expectation, up 46.7 percent in a Reuters poll and outpacing 22.1 percent year on year in exports in the same month.

“Imports are on the rise as raw material prices continue to rise and supply disruptions ease, while exports have slowed,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Costs will rise if imports rise without any change in the size of the global economy. This will lead to import inflation,” he added.

The August trade deficit (https://tmsnrt.rs/3BjNQd6) represented the 13th consecutive month of shortfall on an annual basis and was larger than the 2.3982 trillion yen deficit expected in a Reuters poll.

The yen’s drop of nearly 20% over the past six months has driven up import costs, exacerbating already high costs for energy and raw materials.

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Imports of oil from the United Arab Emirates and coal and liquefied natural gas from Australia increased overall imports strongly.

By region, exports to China, Japan’s largest trading partner, grew 13.5% year-on-year in value thanks to stronger shipments of vehicles such as hybrids to the country.

Shipments to the United States, the world’s largest economy, expanded 33.8% in August, largely due to strong exports of cars and parts.

The data showed that exports, however, fell 1.2% in volume terms.

“Exports are not growing on a volume basis despite the yen’s weakness a lot. It will be difficult for companies’ profitability unless the global economy begins to expand and exports increase,” Minami said.

Japan’s economy grew for the third consecutive quarter in April and June, data showed last week, as the lifting of domestic COVID-19 restrictions boosted consumer and business spending.

However, analysts say the country’s recovery remains fragile as consumer and business activity faces risks such as slowing global growth and monetary policy tightening by many central banks around the world.

(dollar = 142.9700 yen)

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