By Daniel Leussink
TOKYO – Japan recorded a trade deficit in March that was more than four times wider than market forecasts, as China-bound exports slowed sharply while soaring energy prices raised the cost of imports, adding to economic challenges brought by conflict in Ukraine.
Outgoing trade was restrained by a decline in car exports and a slowdown in the growth of shipments to Japan’s biggest trading partner China, data showed, indicating continuing risk from global supply constraints and the coronavirus pandemic.
The persistent trade deficit highlights the world’s third-largest economy’s vulnerability to soaring import costs.
“Japan’s economy may see a slower recovery if China-bound exports are sluggish,” said Takeshi Minami, chief economist at Norinchukin Research Institute. Exports to China make up over a fifth of Japan’s total shipments in value terms, he said.
Imports soared 31.2% in the year to March, Ministry of Finance data showed on Wednesday, above a median forecast of 28.9% in a Reuters poll of economists.
That outpaced a 14.7% rise in exports, resulting in a trade deficit of 412.4 billion yen ($3.19 billion) – eclipsing the 100.8 billion yen estimated in the poll.
March marked the eighth consecutive deficit, though it was the smallest in five months.
By region, exports to China grew a mere 2.9% in the 12 months to March, helped in part by stronger shipments of audiovisual projectors. That was much weaker than the previous month’s 25.8%.
“China’s zero-coronavirus policies and lockdowns in cities caused production activity to shrink, hurting Japanese exports of parts and capital goods,” said Norinchukin’s Minami.
Exports to the United States, the world’s largest economy, grew 23.8% on stronger shipments of motor vehicle parts and power-generating machinery.
Overall, however, exports were dragged down by a 0.7% drop in motor vehicle shipments.
Imports were mainly pushed up by larger shipments of oil from the United Arab Emirates as well as coal and liquefied natural gas from Australia, the data showed.
“Net trade is set to have knocked off around 0.5 percentage point from GDP (gross domestic product) growth last quarter as import volumes rose a lot faster than export volumes,” said Tom Learmouth, Japan economist at Capital Economics.
“But driven by the Japanese staples of cars and capital goods, we think exports will soon start to outpace imports.”
Japan’s economy is likely to grow an annualised 4.9% in the current quarter on a pick-up in consumer activity after the government ended coronavirus pandemic curbs last month, showed a separate Reuters poll of economists.
But rapid weakening of the yen, which has slid to two-decade lows against the U.S. dollar on prospects of widening U.S.-Japan interest rate differentials, are inflating already rising import costs for fuel and food, putting pressure on household spending power.
($1 = 129.1800 yen)
(Reporting by Daniel Leussink; Editing by Christopher Cushing)
