July 24th, 2014
Large Trade Deficit Persists
But (Some) Help May Be on the Horizon to Reduce Imports
Econintersect: Japanese exports fell unexpectedly in June by 2% year-over-year. Bloomberg says the median forecast had been for a 1% increase. Imports increased by 8.4% year-over-year, producing a trade deficit of ¥822.2 billion ($8.1 billion). This was the 23rd month for a trade deficit for Japan and the 31st deficit in the last 36 months. For the 25 years and more before the Great Recession of 2007-2009, Japan consistently ran large trade surpluses.
And while the trade surpluses seemed to return to consistently positive status in late 2009 and through 2010, they turned generally negative as imports increased significantly, exacerbated by increased petroleum imports following the country's nuclear power shutdowns after the Fukushima nuclear disaster in March 2011.
About 34% of Japan's imports are fuels , approximately ¥2.3 trillion ($22 billion). As nuclear power starts to return to production (two plants just received preliminary approval to restart), the burden of high value energy imports will diminish. Before the shutdown Japan had 48 nuclear power plants producing about 30% of the country's electrical power. Two plants coming on line at a yet to be defined date will not restore a significant fraction of the lost power. But it is a start.
However, to have produced a trade surplus in June imports would have had to been reduced by more than ¥822 billion. That would have required more than the output of all 48 closed plants which we estimate have a value around ¥250 billion per month. Japan has a long road yet to travel to recover a positive balance of trade and restoring nuclear power cannot do it alone.
According to Kiichi Murashima, chief economist at Citigroup Inc. in Tokyo, quoted by Bloomberg:
"Export recovery will be sluggish mainly due to structural reasons. The trade deficit will remain at the current level through the end of this year with both exports and imports growing slightly."
The structural problems referred result from Japanese companies manufacturing more and more overseas at the points of sale.
Japan Trade Deficit Expands After Exports Unexpectedly Drop (Masaaki Iwamoto and Keiko Ujikane, Bloomberg, 23 July 2014)
Japan: Exports Decline in May (GEI News, 18 June 2014)
Japan Balance of Trade (Trading Economics, 23 July 2014)
Two Japan nuclear reactors pass restart hurdle (BBC News, 16 July 2014)
UPDATE 1-Japan June crude imports rise 1 pct, LNG up 5.9 pct (Osamu Tsukimori, Reuters, 24 July 2014)
The Rise in the Cost of Power Generation in Japan after the Fukishima Daiichi Accident and Its Impact on the Finances of the Electric Power Utilities (Yuhji Matsuo and Yuhji Yamaguchi, The Institute of Energy Economics, Japan, IEE Journal, November 2013)