Japan’s trade balance posted a deficit of USD 10.5bn (JPY 1,140.1bn) for the January to July 2019 period, compared to a surplus of USD 3.7bn (JPY 350.5bn) in the same period of the previous year.

The deficit was the result of plunging exports, down by 4.9% y/y, mitigated by a more moderate decline in imports, down by 1.7% y/y. Exports have been persistently decreasing on annual basis since the last months of 2018, as July was the first month this year to register growth, 1.4% y/y. In yen terms, however, it was a mere slowdown – a 1.6% y/y negative change.

Trade data 

According to BOJ there are two identifiable sources of the weak export performance – the trade dispute between Japan’s two major trade partners, the US and China, and the downturn in the global cycle of IT-related goods (such as parts for smartphones and semiconductors). Both affected negatively the Chinese economy, disrupting the regional value added chains, and causing the slowdown to spill over to other Asian markets.

Exports by industry and country

The trends from the first quarter remained unchanged and in January-July exports to China, which accounted for 18.2% of total exports, accumulated a decrease of 9.2% y/y. Exports to Asia’s newly industrializing economies, with a 20.2% share, and those to other Asian economies (14.3% share) were down by 7% y/y and 5.6% y/y respectively. The value of exports to the US (20.7% share), on the other hand, increased by 7.4% y/y.

In terms of products in January-July exports of all major categories declined. General and electrical machinery (semiconductors and semiconductor manufacturing equipment being the most significant items), which represented 36.7% of total exports, were down by 7.5% y/y. Transport equipment (motor vehicles and related goods), which had a 23.9% share, declined by 2% y/y. Manufactured goods (iron and steel), with an 11% share, were down by 7.3% y/y, miscellaneous articles and re-imports (12.9% share) were down by 7.3% y/y.

Imports by industry and country

On the import side, the downturn in production continued to affect demand for industrial supplies, which constitute nearly half of the imports, and in January-June the imports of the group declined by 3.9% y/y. Capital equipment imports, which make up 28.8% of the total, returned to growth in the second quarter and for the first six months of the year grew by 0.1% y/y. Imports of non-durable consumer goods continued to decline, down by 1.9% y/y for the period. Those of durable consumer goods and food and other goods for direct consumption declined as well, down by 2.5% y/y and 0.1% y/y respectively, despite returning to growth in the second quarter.

The current account surplus stood at USD 94.8bn (JPY 10,467.6bn) in H1 2019, down from USD 101.1bn (JPY 10,926bn) for H1 2018. The trade balance, which still remained positive at USD 2bn, was the major source of the decline. The balance of services, on the other hand, came to a USD 2.1bn surplus, compared to a USD 3bn deficit a year ago. The income balance also improved, as the lower primary income surplus was compensated for by a lower secondary income deficit. The net FDI inflow came to USD 21.4bn for the first six months of the year.

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