Annual trade deficit in Japan widens to a record $161 billion

Japan’s export growth slowed in March, dragged down by a drop in China-bound shipments of cars and steel in a slide that underscores concern about slackening global demand amid higher interest rates and Western banking-sector jitters.

Import growth outpaced exports in March, due to the hefty cost of coal, crude and oil products, helping bring the annual trade deficit in the world’s third-biggest economy to a record 21.7 trillion yen ($161 billion). It exceeded the previous record of 13.7 trillion yen in fiscal 2013.

The yen’s depreciation by 16.5 per cent from the same month a year earlier also boosted the value of imports, rather than driving up external shipments as Japanese exporters have shifted production overseas during previous periods of yen strength.

Thursday’s data, released by the Ministry of Finance, showed exports rose 4.3 per cent in March from a year earlier, logging a 25th straight month of increase, led by shipments of US-bound cars. That was above economists’ median estimate of a 2.6 per cent gain, but below a 6.5 per cent increase in February.

Analysts say Japan’s trade deficit will persist for the time being as exports weaken.

“Chinese consumption lacks strength even after zero-COVID curbs were lifted,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Effects of the fully-fledged monetary tightening in the West since last summer will play out in their economies, causing Japan’s exports to turn downward going forward.”

A months-long global monetary policy tightening streak to curb red-hot inflation has raised the spectre of a worldwide recession, while the recent failure of two mid-sized US banks as well as troubles at Credit Suisse, have raised worries about a credit crunch.

Thursday’s data showed imports rose 7.3 per cent in the year to March, below the median estimate of an 11.4 per cent increase and after the prior month’s 8.3 per cent gain.

The trade balance in March came to a deficit of 754.5 billion yen versus the median estimate for a deficit of 1.29 trillion yen in March, after a shortfall of 897 billion yen in February.

By region, exports to the United States grew 9.4v in the year to March, slowing from the 14.9 per cent seen in the previous month.

Exports to China, Japan’s largest trading partner, fell 7.7 per cent year-on-year in March, a fourth straight month of declines, the trade data showed.

Meanwhile Japan’s Nikkei share average rose on Thursday, clawing back losses from the previous day as retailers surged from an increase in foreign visitors and semiconductor shares rebounded from early declines.

The Nikkei added 0.18 per cent to 28,657.57, finishing near the day’s high after starting out in the red, and putting it not far from Tuesday’s nearly six-week high of 28,698.22.

The broader Topix remained slightly in the red at the end of trading though, losing 0.03 per cent to 2,039.73.

“Although the market is cautious after the Nikkei reached a high on Tuesday, there isn’t really any major negative news to drive a decline,” said Maki Sawada, a strategist at Nomura Securities.

Investors will be closely watching chip-making equipment maker Disco Corp earnings later in the day, she said.

Chip-making equipment giant Tokyo Electron Ltd rose 1.75 per cent and chip-testing equipment maker Advantest Corp gained 2.2 per cent, adding 27 and 27 index points respectively to the Nikkei’s tally to be the no. 2 and 3 supports. They began the day in the red, tracking declines in US peers.

Uniqlo store operator Fast Retailing Co Ltd delivered about 46 points with a 1.4 per cent advance. Fellow retailer Takashimaya Co Ltd was the biggest percentage gainer, jumping 3.71 per cent.

Among Tokyo Stock Exchange industry sectors, banking and insurance were among the best performers, rising around 0.4 per cent each. Paper & pulp was the top performer, up 1 per cent, while mining led losers with a 0.85 per cent slide.

Meanwhile foreigners were big buyers of Japanese shares in the week ended April 14, bolstered by dovish comments from the country’s new central bank governor and upbeat results of domestic retailers.

Global sentiment also remained positive and supported risk appetite as a cooler-than-expected US inflation reading reinforced expectations that the US Federal Reserve may soon pause raising interest rates.

Foreign investors purchased a net 1.59 trillion yen ($11.82 billion) of Japanese equities last week, their biggest weekly net purchases since at least January 2018, data from Japanese exchanges showed. Foreigners bought 1.05 trillion yen of cash equities and 540.77 billion yen of derivatives.

Retailers Aeon Co Ltd and Uniqlo-owner Fast Retailing, both reported strong earnings last week, signalling a recovery in the retail sector.