Japan trade gap widens as imports surge, with capex solid for now

Japan’s imports jumped to a record amount in July, boosted by global fuel inflation and a weak yen, outweighing exports and deepening the trade deficit, in a sign of a further worsening in the terms of trade for the export-oriented economy.

The trade data came on the heels of Reuters Tankan, which showed an improvement in Japan’s business sentiment in August, while a key gauge of corporate capital spending rebounded in June from the previous month’s decline.

While the mixed batch of data provides some evidence of resilience, policymakers are likely to maintain calls for more stimulus as the world’s third-largest economy struggles to shake off the hit from the pandemic and as the global outlook dims.

“Exports are likely to slow down ahead due to global tightening of monetary policy, which could sap corporate appetite for investment,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Japan’s export-led economy will be losing momentum towards the end of this year and early next amid fears of a global downturn.”

Data showed yesterday that exports grew 19% in July from a year earlier, posting 17 straight months of gains led by United Statesbound shipments of cars and China-bound chip-related shipments, beating expectations for an 18.2% gain. Imports increased 47.2% year-on-year in July to a record 10.2 trillion yen (US$76.06 billion or RM 339.7 billion), owing to rising crude oil, coal, and liquid natural gas prices.

That beat expectations for a 45.7% rise and overwhelmed exports, bringing the trade deficit to 1.4368 trillion yen (Rm47.8bil) in July. The yen’s 23.1% fall from a year earlier added to higher import costs, the data showed.

Separate data showed Japan’s new machinery orders, a key gauge of capital spending, rose 0.9% in June from the previous month, reversing the previous month’s decline but below the 1.3% gain expected by economists.

From April to June, core machinery orders grew 8.1% from the previous quarter – the fastest growth since the final quarter of 2020.

A government official told reporters that firms are expecting a 1.8% decline in July to September core orders, pulling back from the solid growth seen in the second quarter.

The official added that there are downside risks such as China’s economic slowdown and a Covid-19 resurgence.

Reflecting corporate resilience, the sentiment index for manufacturers rose four points to 13 in August and is seen going up further to 15 over the next three months.

The service-sector index rose to 19 from 14 in July and was seen as steady in November, helped by the lifting of Covid-19 curbs in industries such as tourism and eateries.