Workers are seen in a container area at a port in Tokyo. Finance ministry data released yesterday showed Japan’s trade deficit fell slightly to ¥948.5bn ($8.75bn), compared with a revised ¥971.4bn a year ago.
Dow Jones/Tokyo
Japan’s trade deficit narrowed slightly in August, but the scale of the red figures continues to concern policy makers who had hoped a weaker yen would help boost exports and fuel economic growth.
Japan’s 26th straight trade deficit in August again showed the negative effect of a weaker yen on the balance of imports and exports, pushing up the prices of imported goods at a time when the nation is more reliant on fuel from overseas.
The yen has already fallen further since August, recording new six-year lows against the dollar yesterday following the latest monetary policy by the US Federal Reserve, a weakening that will add to concerns over the direction of the trade balance over the coming months.
Finance ministry data released yesterday morning showed Japan’s trade deficit fell slightly to ¥948.5bn ($8.75bn), compared with a revised ¥971.4bn a year ago, and better than a deficit of ¥1.028tn predicted by economists surveyed by The Wall Street Journal and the Nikkei.
But exports continued to perform anemically, falling 1.3% in August from a year earlier. Imports also decreased 1.5%, though ministry officials noted some factors that brought the monthly figure down, including a fall in demand for smartphones ahead of the release of the new iPhone in September.
The stubbornly high deficit is at odds with the view of Prime Minister Shinzo Abe’s administration given last year. The government predicted that trade deficits would narrow this year after the record ¥11tn deficit in 2013. Instead, deficits totalled nearly ¥8tn in the first half alone, and the figure for the year is on course to set a fresh record.
While a cheaper yen can help big exporters by boosting their profit margins and enabling them to price goods more competitively overseas, it also makes imports, including fossil fuels, more expensive, a negative for consumers, and small and big businesses. All of Japan’s nuclear power plants are offline amid safety concerns following the Fukushima accident, forcing the nation’s utilities to import more energy supplies.
According to Daiwa Securities, pretax profit at big Japanese companies will rise 14%, instead of 8%, if the yen falls to 110 to the dollar from around 100, in the current fiscal year ending March 2015. Abe’s government is hoping that such profits will eventually find their way to the economy in the form of higher wages, dividends and investments, giving it a much-needed boost after a 7.1% contraction in the second quarter.
Following overnight Federal Reserve guidance on a return to interest rate rises, the dollar surged above ¥108.5 against the yen, far above its August average of ¥102. Such a large fall in the yen is bound to have an impact on import bills from September onward, government officials acknowledge.
