Japan trade slips into deficit, strong yen clouds export outlook

livemint.com:

TOKYO : Japan’s balance of trade fell back into the red in July, with the yen’s recent appreciation dimming the outlook for the nation’s exports. Japan posted a trade deficit of 621.8 billion yen for July, equivalent to $4.28 billion. That followed a 224 billion yen surplus in June, Ministry of Finance data showed Wednesday, and compared with the 359.1 billion yen deficit expected by economists polled by data provider Quick.

In July, exports rose 10.3% from a year earlier thanks to chip-related demand, faster than June’s 5.4% increase. But the rise in imports outpaced that of exports, increasing 16.6% on demand for pharmaceuticals and telephones, the MOF data showed. A recovery in domestic demand on the back of rising wages has contributed to the strength in imports, economists say.

Higher import costs, inflated partly by the yen’s weakness, have left the country’s trade balance in the red in recent years as Japan depends largely on imports for items including food and energy. Economists say the country is on its way to report another year of an annual trade deficit. Meanwhile, any sustained recovery in exports may be slow due to uncertainties over the global economic outlook.

In July, Japan’s exports to the U.S. and China showed solid growth, while shipments to Europe fell 5.3% from a year earlier. “[Japan’s] exports are likely to be sluggish for the time being as the slowdown in overseas economies continues, while the downward pressure from the strong yen is being added," said NLI Research Institute economist Taro Saito.