Japan's Trade Shows Little Change

Japan's trade trends show little alteration over the last few months. Over that period, exports have grown year-over-year in a range from 5.5% to 8.4% while imports have declined by 3.9% to 5.8%. The trade gap has fluctuated between -155 billion yen and -258 billion yen. And there has been no sense of trend. But the chart shows that these data over the last four months are a world part from earlier trends which found deficits on the order of 500 billion yen to one trillion yen. Since mid-2014, the big driver of trade improvement has been reduced imports. Year-over-year trends in export growth have been volatile but have not seen any change since late-2014.

Sequential growth, patterns from 12-month to 6-month to 3-month, show an erratic export trend with a hint of improvement. Imports are without clear trend on this horizon but show a tendency to weaken. Both auto exports and auto imports remain strong, but auto exports are accelerating; imports demonstrate a tendency toward weaker growth.

The yen has generally been falling over the past year, having dropped by 21% vs the dollar. The weaker yen has helped to cheapen exports and make imports more expensive. We see that in the tendencies for growth in exports and imports under one year.

Despite the recent trade improvement on the back of the weakening yen, Japan will have a hard time trying to grow its way out of its situation using trade as a crutch. World demand is still weak. Japan, like Europe, is running a weak exchange rate policy; however, in both euro and in Japan, the weaker currency has been slow to pay dividends.

Japan's two main trading partners are the United States and China. While the U.S. has been growing, its growth has been slow and with uneven consumption - except for motor vehicles where sales have been brisk. China has been embroiled in a slowdown phase (albeit with still globally impressive growth rates), a phase from which it may be emerging. But the recent turmoil in China's stock market may pose a new challenge for China's growth. The authorities' decision to employ an artificial fix has harmed confidence in China's economy and has caused inventors to look back at the previous good stock market performance with more skepticism. Unless Japan's two largest trade partners pick up their growth, Japan itself will continue to struggle. Its load of domestic debt is prodigious. Its attempts to gain control of government debt with value-added tax increases have proved troublesome as tax hikes have sunk economic growth each and every time they have been used. Japan is a country without many options for growth. Trade could allow it to tap external sources of demand, but that channel is being sought by too many nations in this low-growth environment.