Commentary Directory

Japan’s trade balance fell to -¥930 billion in August from -¥66 billion in August. Exports dropped -8.4% MoM, and imports increased 1.5% MoM to cause the sharp widening of the trade deficit. Exports to Asia, including China, fell by -5.3% MoM to cause the Asian trade surplus to fall to virtually even. Over the past year, exports have fallen -8.8% YoY and imports were down -12.9% MoM. A decline in exports to North America, Oceania, and Europe was also seen in August and contributed to the overall trade deficit. The slowdown in external shipments was evident across just about ever commodity segment. The largest areas of Japan exports all saw significant drops: manufactured goods down -6.0% MoM, machinery down -13.5% MoM, electrical machinery down -2.6% MoM, and transport equipment down -6.4% MoM.

The weakness in Japan’s exports is understandable in the context of a weakening global economic environment, but this month-to-month move was particularly sharp. Chinese weakness has clearly had an outsized impact on the Japanese economy as trade between the two has slowed substantially over the past year (exports to China down -11.0% YoY and imports from China down -12.1% YoY). In the period of Chinese weakness, exports to the US and Europe improved to replace its neighbor’s lost demand (exports to the US up 5.1% YoY and to Europe up 18.9% YoY). However, central bank tightening is going to cause the US and Europe to lose demand for foreign goods, and the effect of that tightening was seen in the contraction in Japanese exports in August.