Slight Rise in Exports Overpowered by 18.1% Import Jump
TOKYO—Japan's trade deficit increased sharply in March, suggesting that an early turnaround in the trade balance may be further away than had been hoped for.
While some of the increase was due to a temporary factor—higher spending ahead of the April 1 sales tax increase—exports were also weaker, especially to Asia, presenting a new challenge to Prime Minister Shinzo Abe's efforts to revive the economy.
Finance Ministry data showed Monday that exports grew only 1.8% from the year before, despite a 9% fall in the yen against the dollar. A weaker yen lifts the nominal value of exports when expressed in yen terms. Exports fell 12.5% to Thailand, 7.2% to Indonesia and 6.2% to South Korea.
Stripping out the effects of the weaker yen, exports fell 2.5% in volume terms, the biggest drop in nine months. Export volumes fell to all regions except the U.S.
With imports being pushed up by spending ahead of the April 1 sales tax rise, the trade gap ballooned to ¥1.45 trillion ($14 billion) in March. The figure was the largest ever for the month and marked a record 21 straight months of shortfalls.
The massive deficit, which compares with a gap of ¥356.9 billion a year ago, was much worse than the median forecast of a ¥1.07 trillion deficit in a survey of economists by The Wall Street Journal and the Nikkei.
Imports jumped 18.1% from the previous year, outpacing the 1.8% rise in exports. The economic slowdown in China and Thailand has depressed demand for Japanese machinery and auto parts. The continued move to offshore production in countries like Mexico also apparently dented overseas demand for Japanese-produced autos and electronics.
The weaker exports are in line with downbeat views from the International Monetary Fund, which earlier in April trimmed its global growth estimate to 3.6% from 3.7% for 2014, citing a more modest pickup in growth in emerging economies.
Japan's trade balance has been deteriorating steadily over the past three years, in part due to a surge in fossil-fuel imports following the March 2011 nuclear accident in northern Japan. The deficits started to swell under the Abe administration, as his policy of weakening the yen lifted the import bill without similarly raising exports.
The import growth suggests domestic demand will stay strong, even after the sales tax goes up, as most of the items imported in March were to stock shop shelves for April or later, government officials said.
Other economic data point to an early rebound in consumption. Year-over-year declines in appliance sales narrowed to 2% in the second week of April, from 19% in the first week. Those in sales of food and beverages narrowed to 10% from 17%, according to the Cabinet Office.
If imports remain strong, it is even more critical that exports recover for Japan to fix its trade balance. But with China's economy slowing, Thailand in political turmoil, and the rest of Southeast Asia still grappling with tighter credit following the U.S. move to reduce its monetary stimulus, a quick recovery in exports looks difficult.
"Japan will make every effort to increase trade with emerging economies, including through the Trans-Pacific Partnership," said Yoshihisa Furukawa, senior vice finance minister, on Monday, referring to U.S.-led free trade talks now being negotiated. The U.S. and Japan, the two biggest participants in the initiative, have been negotiating intensively in the past month to reach a broad agreement on the pact.
Some economists now warn of prolonged trade deficits.
"It remains difficult for exports to recover even if overseas economies improve. There is a risk of increasing imports and ballooning trade deficits," said Junko Nishioka, chief economist at RBS Securities Japan.