Japanese Trade Deficit Continues

A nation’s balance of trade is simply the difference between what it exports minus what it imports. In Japan, figures just released show that the trade balance with the rest of the world is negative for the eighth straight month despite the Yen’s significant depreciation.

The Yen has depreciated by 30% against the Euro since last July meaning that exports to the Eurozone are almost a third cheaper today than they were last summer. But the export bonanza has yet to materialise partially since global demand is still weak and the Eurozone is still dealing with uncertainties due to the sovereign debt crisis. An additional factor is that a significant of Japan’s production base has been moved overseas for logistical and labour cost reasons and is not reflected in domestic export figures. Japanese exports to the EU have suffered 17 months of decline.

The trade deficit for February came in at $8.1 billion, marking a year-on-year decline of 2.9% whilst imports rose by 11.9%. Many raw materials are priced in Dollars, so the depreciation of the Yen has meant that imports are more costly. With the mothballing of most of the nation’s nuclear power stations since the March 2011 earthquake and tsunami, Japan has had to import fossil fuels for power generation.

China has become Japan’s largest trading partner, but exports to this market have declined because of weaker Chinese demand, but also political factors due to a territorial dispute between the two nations over uninhabited islands in the East China Sea. Apart from territorial factors, it is suggested that the islands’s possession could confer rights to significant petrochemical reserves in the adjacent ocean.