Japan Wednesday reported its biggest trade deficit since February, as exports slowed and the decline in imports widened.
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Imports fell 3.2 percent year-on-year in July versus the median estimate for a 7.9 percent annual decrease.
The steep fall of the yen under the Abe administration has led to a surge in the earnings of major global firms, but exports have not increased as much since many companies had already shifted their production overseas where demand is growing.
Demand in Europe accounted for most to the gain, with exports volume rising 2.1%.
Thanks to the shift of manufacturing offshore over the past two decades, the weaker Japanese currency has done little to push exports significantly higher, despite the huge windfalls for Japanese manufacturers when they change dollar-based profits back into yen.
In July, Japan’s exports to China rose 4.2 per cent from a year earlier, while shipments to the U.S. jumped 18.8 per cent, helped by a 41 per cent jump in exports of vehicles and parts. Imports from the Middle East fell 40.5 percent as the value of imports of oil, gas and other fuels fell by about one-third.
“If we are right, price pressures are unlikely to strengthen as quickly as policymakers hope, rendering the Bank’s intention of hitting the 2% inflation target by summer 2016 increasingly unrealistic”, analysts at Capital Economics said. A slowdown in China is taking a toll, with export volumes to Japan’s biggest trading partner falling for a sixth month on weaker demand for cars.
The second quarter economy report of Japan indicates deterioration between April and June.
Japan’s still-struggling trade picture was highlighted in the GDP data this week, as the economy shrank 0.4 percent in the three months to June – or 1.6 percent on an annualised basis.
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Calls are emerging for Prime Minister Shinzo Abe to step up fiscal stimulus after two quarters of growth fizzled with last quarter’s 1.6 percent annualized drop in gross domestic product.
