Japan’s Exports Continue Strength Amid Trade-War Anxiety

(Bloomberg) -- Steady growth in Japanese exports for a second-straight month offered more reassurance that Japan’s economy is rebounding in the current quarter, despite rising trade tensions. A surge in imports pushed the trade balance to a bigger-than-expected deficit.

Highlight

  • The value of exports rose 8.1 percent in May from a year earlier (forecast 7.5 percent), according to data from the finance ministry.
  • Imports increased 14.0 percent (forecast 8.0 percent).
  • The trade balance was a 578.3 billion yen deficit ($5.2 billion) (forecast deficit of 205.2 billion yen).

Key Takeaways

The latest figures show moderate strength in Japan’s exports is continuing with no clear signs so far of recent trade tensions weighing on Japan’s trade with the rest of the world, though steel exports to the U.S. fell. President Donald Trump has threatened both allies and rivals with tariffs and this month threw the Group of Seven countries into turmoil by revoking U.S. support for a joint statement after he left the leaders summit in Canada. Trump then took to Twitter to complain about countries with "Massive Trade Surpluses." Prime Minister Shinzo Abe has been walking a tightrope, trying to maintain a good rapport with Trump while pushing back against possible tariffs on vehicle imports. Exports have been a key strength for the Japanese economy amid softness in domestic demand.

Economist Takeaways

  • The figures concur with the view that Japan and the world economy are continuing on a growth trend, with double-digit growth in exports to China showing that Asia’s biggest economy is still doing well, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. "The overall trend is that export volumes are steadily growing, so trade continues to be doing well. Looking at it by region, export volume to the U.S. has growth of 6.8 percent, but it’s worrying that exports to the EU are shrinking."
  • Don’t be distracted by the larger-than-expected trade deficit, says Takeshi Minami, chief economist at Norinchukin Research Institute. "Exporters are more important and they are gaining traction steadily on the back of the global economy, even though they are not that strong. Strong imports reflect strong domestic demand. So, I don’t think a trade deficit is a bad thing."
  • While the trade surplus with the U.S. shrank, Norinchukin’s Minami cautions that figures for a single month won’t change the overall dynamic on trade tensions. "The U.S. will continue to press Japan for a bilateral trade agreement.”

Other Details

  • Japan’s trade surplus with the U.S. fell 17 percent to 340.7 billion yen, with the volume of steel exports slipping 18 percent. The move in steel was within a monthly range, so it can’t be said this is due to U.S. tariffs, said a finance ministry official at a briefing.
  • Oil from Saudi Arabia, aircraft from the U.S. and pharmaceutical products from Ireland were the main contributors to the sharp gains in imports, the official added.
  • Exports of equipment for making semiconductors jumped 23 percent, shipments of autos rose 7.1 percent and auto parts advanced 10 percent.
  • Japan’s adjusted trade balance showed a deficit of 296.8 billion yen (forecast 144.1 billion yen surplus).
  • Exports to China, Japan’s largest trading partner, rose 14 percent in May from a year earlier.
  • Those to the U.S. grew 5.8 percent.
  • Shipments to the EU increased 0.7 percent.

©2018 Bloomberg L.P.

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