The European Politics Blog

 

Japan’s trade deficit nearly doubled in July, owing to flowing energy imports and a weaker yen which has made imported goods a lot more expensive than usual. Imports have increased substantially to a 19.6 percent, outpacing a 12.2 percent rise in exports and shifting the trade deficit from ¥944bn in June to the ¥1.02tn of July. This is third largest increase in records dating from 1979 but the near term outlook isn’t so bleak because an increase in exports means that Japan is starting to benefit from a recovery of demand in the United States, China and Europe.

The yen has fallen 11 percent against the dollar this year and it is expected that Japan’s trade position will improve with time as the gradual global economic recovery is underway and slowly starts to become more established. Exports rose a 7.4 percent in June and as the global economic situation improves, demand for export volumes will also rise. The 12.2 percent increase in exports in July is the highest that Japan has seen since July 2010.

Capital investment has slowed down, the weaker yen has sent the country’s energy import bill soaring, and the seasonally-adjusted deficit has just widened to a 944 bn yen in July. The export boost should however, help Prime Minister Shinzo Abe’s efforts to reign in an economic recovery in the face of rising energy costs and a higher trade deficit. The finance ministry reported a bigger-than-expected trade deficit on Monday, despite a demand in trade imports in China – the deficit was bigger than previously expected because of the weak yen which has increased costs of energy imports.

The fall of the yen follows a series of aggressive measures unveiled by policymakers in Japan to revive economic growth. The government is focusing on driving home growth more than on efforts in any other key stimulus package, and although this might seem to many to be quite a risky economic venture to be undertaking during recession, some in Japan actually perceive the weakening of the Japanese currency as being beneficial to certain trade sectors, such as that of automobiles and information technology.

A weak yen policy will actually help to spurn about growth because it boosts exports overseas tremendously, making Japanese goods cheaper to foreign buyers, which in turn also helps to improve export rates. Exports to China, Japan’s biggest trade partner, rose by 9.5 percent from a year earlier, compared with the 4.7 percent in June, while exports to the United States increased to 18.4 percent on year, faster than the 14.6 percent increase in June.

The stronger export figures show that Japan’s economy is being aided from a recovery in demand in both Europe and the United States, as well as by the yen’s decline against the dollar this year. Earlier this month, Toyota Motor Corp., Asia’s biggest car maker, raised the profit forecast for the year ending March 2014 to 1.48tn yen, as the weaker yen boosts the the value of Japanese cars sold overseas. Data released on Monday showcased that motor vehicle exports increased by 14.3 percent on an annual basis, while car exports to the United States particularly, grew 32 percent.

Should the Japanese economy be in an improved condition soon, Abe could choose to not pursue the controversial sales tax increase to a 8 percent in April 2014. Presently the sales tax stands at 5 percent, and although an increase would help the nation’s finances, it would also affect consumption. Consumer consumption is already mixed as little evidence points towards companies being confident enough to start spending big on new investment and hiring more workers.

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