Japan's trade deficit extends its longest run since 2015 fuelled by weaker yen

JAPAN'S imports continued to surge, driven by soaring energy prices and a weaker yen, extending a sequence of trade deficits to an eighth-straight month as export gains slowed.

Imports jumped 31.2 per cent from a year ago on higher oil, coal and gas prices, compared with a 28.9 per cent rise forecast by analysts.

A stronger expansion of chip-making shipments supported continued gains in exports, but a fall in vehicle shipments dragged on the pace of gains.

While the trade deficit narrowed to 412.4 billion yen (S$4.4 billion), the streak of shortfalls is the longest since early 2015, providing another possible reason for yen selling as Japan's currency continues to slide against the dollar.

The yen's sharp drop to a 20-year low since March will compound the impact of energy prices that are fuelling Japan's trade shortfall in coming months.

The continued gains in exports are unlikely to be enough to outweigh imports and support a fragile economy that is expected to have contracted slightly in the first quarter.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"Trade will be pretty much neutral for growth in the first quarter," said economist Yuichi Kodama at Meiji Yasuda Research Institute.

"With the Ukraine situation weighing on the global economy and China expected to slow down, I don't think exports can be a growth driver going ahead."

"The trade report for March shows yen weakness becoming a real problem for the economy...the country is still saddled with a hefty trade deficit that will weigh on Q1 growth more than consensus estimates."

Bloomberg Economics' Yuki Masujima, said that a weaker yen usually bodes well for the economy by making exports more competitive and boosting the value of overseas earnings.

But policymakers are increasingly pointing to negative impacts of costlier imports and higher energy bills for consumers.

It also boosts the cost of materials that companies buy abroad, crimping their profit margins.

Meiji Yasuda's Kodama added: "Energy prices themselves are surging, but people tend to blame a weaker yen for exacerbating the rise."

"The government has no choice but to keep explaining the rises in energy costs and adding measures to help people cope with it."

Prime Minister Fumio Kishida has already boosted fuel subsidies to help households cope with higher petrol prices.

He is expected to announce further economic measures in the coming days to ease the pain of rising prices.

The March data showed the value of Japan's overseas shipments rose 14.7 per cent from a year earlier compared with economists' estimate of a 17.1 per cent increase.

Seasonally adjusted, exports rose 1.7 per cent in March from the previous month after falling in February.

Japan's exports are susceptible to risks in major markets.

As China's virus lockdowns stoke concerns about a slowdown, that nation reported its biggest decline in consumer spending and highest unemployment rate since the early months of the pandemic.

In the US, there is a risk that aggressive interest rate hikes to combat inflation may cool demand.

Gains in the value of shipments to China sharply cooled to 2.9 per cent from 25.8 per cent in February.

Exports to the US rose 23.8 per cent, while exports to Europe climbed 16.8 per cent. BLOOMBERG