Japan’s surprise trade surplus comes accompanied with caveats for growth

Japan’s balance of trade most unexpectedly swung to its first surplus since July 2021, an upshot that should certainly aid in easing pressure on the economy’s recovery, although risks still remain for the growth outlook.

The trade surplus reached 43 billion yen ($308 million), the finance ministry informed on Thursday. This is in stark contrast to 46.7 billion yen deficit forecasted by analysts. The worth of exports rose 1.5%, led by shipments of construction machinery and cars. Imports slid 12.9%, dragged down by sharp fall in the value of fuel shipments into Japan.

The report conveys mixed messages for the economy. Surplus is an encouragement for Japanese businesses as they continue to recover from the negative impact of the Covid 19 pandemic. Confidence among the nation’s business organizations improved across the board in the BOJ’s latest quarterly Tankan report released this very month, backing the central bank’s opinion that the nation’s economy is gradual recovery path. The same report highlighted vulnerabilities in the state of demand across the world and pointed to threats for Japan’s growth prospects.

“If you look at the details, it’s not necessarily a bright situation,” said Kohei Okazaki (senior economist at Nomura Securities Co.). “On a single month basis, there’s a slight recovery, but exports to the US aren’t clearly in an upward trend”, he said. Taro Kimura (economist) stated, “Japan’s export gains in June offer positive signs that supply chains are healing — likely helping trade support growth despite softening global demand.”

Exports to Europe and the US rose by 15% and 11.7% respectively while exports to China dropped by 11% (highest since January) as the world’s second largest economy continues to suffer, casting a cloud on the prospects for global growth. The speed of China’s economic expansion was far below expectations in the second quarter partially due to a slowdown in consumer spending.

Exports of production gear for chips dropped considerably by 17.7% from a year ago, with shipments of chip components to China slipping by 12.8%. Japan is all set to implement its fresh export curbs, which according to officials is not targeting any specific nation. Shipments of chip-making gear to the US plunged hugely by 36.9%.

Weakening yen inflates the worth of imports but despite yen getting weaker by 6.8% on an average in June compared with a year earlier, value of imported fuel got reduced, as energy prices dropped at a faster clip compared to yen.

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