Japan’s trade deficit driven wider by weak yen as imports surge

TOKYO – Japan’s trade deficit widened in October as the country’s import bill continued to rocket upward, fuelled by a historic slide in the yen that has already helped push the economy back into reverse.

The trade gap grew to 2.16 trillion yen (S$21.2 billion) from 2.09 trillion yen, the Finance Ministry reported on Thursday. The balance has now been negative for 15 straight months, the longest streak since 2015.

Imports grew at the fastest pace since 1980 as the yen inflated already elevated commodity prices. The 53.5 per cent gain was led by buying of crude oil, liquid natural gas and coal. Exports gained 25.3 per cent, driven by cars and semiconductor parts, for a slightly weaker increase than forecast by economists.

The prolonged trade deficit reflects Japan’s still fragile recovery from the pandemic, and came after the nation’s economy unexpectedly shrank in the third quarter, weighed down in part by the impact of the tumbling currency. The streak of red trade ink is likely to keep feeding back into yen weakness, though the currency has made some gains in November.

The trade data showed that the average exchange rate was 145.09 yen to the US dollar, 30 per cent weaker than a year earlier.

The yen neared 152 per dollar at one point in October, hitting a fresh 32-year low.

Following its first intervention to support the yen since 1998 in September, the Japanese government has continued to step into markets again in October.

“The expansion of the trade gap was inevitable, given the combination of two factors, the weak yen and rising price of commodities,” said economist Takeshi Minami at Norinchukin Research Institute. “There’s still a possibility of another round of yen depreciation that’ll increase Japan’s deficit.”

The trade outlook is further clouded by the prospect of a global slowdown as the impact of higher interest rates overseas weighs on demand. For now, exports are continuing to rack up solid gains with shipments to the US rising 36.5 per cent from a year ago to outstrip the total to mainland China. Exports to China grew 7.7 per cent for the smallest increase since June. Outbound shipments to Europe gained 28.1 per cent.

The plunge in the currency has primarily been caused by policy differences, with the Bank of Japan remaining a lone holdout for rock-bottom interest rates as other central banks led by the US Federal Reserve continue to raise borrowing costs.

Domestically, the weak yen has driven up energy costs and inflation rates, impacting both Japanese households and companies. The nationwide core consumer price index hit 3 per cent in September for the first time in over three decades, excluding the impact of tax hikes. The November figure, which will be announced on Friday, is projected to be even higher at 3.5 per cent.

To ease the hit of higher prices on consumption,

Prime Minister Fumio Kishida in October ordered an economic stimulus package

that includes aid to reduce energy costs and cash handouts for childcare. His Cabinet has approved an extra budget of 29.1 trillion yen to partly fund these measures. Bloomberg