Japan’s trade deficit surged to a record in January, as exports to China sharply dropped and the global economy slowed.
(Bloomberg) — Japan’s trade deficit surged to a record in January, as exports to China sharply dropped and the global economy slowed.
The trade gap jumped to 3.5 trillion yen ($26.1 billion) from 1.45 trillion yen in December, the finance ministry reported Thursday. The deficit far exceeded the previous record of 2.82 trillion yen, although it was smaller than analysts’ estimates of 3.98 trillion yen.
While export growth slowed sharply to 3.5%, imports continued to show double-digit gains with a 17.8% increase from a year ago. The report showed the value of shipments to China sank 17.1% in January amid lunar new year celebrations, while those to the US and Europe grew at a weaker pace of 10.2% and 9.5% respectively.
The record deficit casts a cloud over Japan’s economy, as it struggles for recovery momentum after being hit by a sharply weaker currency and high oil prices.
China’s sudden turnaround on its virus policy has also meant a hit to Japan’s exports to the world’s second largest economy, as Covid cases surged following the end of China’s Covid-Zero policy. Shipments to China and other Asian countries account for more than 50% of Japan’s overall exports.
Still, one-off factors contributed to the deficit. Seasonal factors including the lunar new year weighed on the January figures.
What Bloomberg Economics Says…
“Looking ahead, we expect the trade deficit to narrow sharply in February, driven by a year-on-year jump in exports. The average of the shortfalls in January and February, though, will probably be on par with the deficit in December 2022.”
— Yuki Masujima, economist
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The data also showed that the average exchange rate last month was 132.08 yen to the dollar, 15% weaker than a year earlier. Although the weaker yen and higher oil prices — the two main factors behind the prolonged trade deficit — have faded compared to last year’s peak, their effects still appear to be lingering.
Another round of expanding import bills may trigger further price hikes. Nationwide inflation reached a 41-year high in December, as companies, especially food manufacturers, passed higher costs onto their products. Accelerating inflation has eaten into consumers’ purchasing power, a trend reflected in household spending’s second straight month of declines in December.
(Updates with more details from the release)
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