Economy in Brief: 2022

Japan's trade deficit remained in force in March. While it improved slightly month-to-month, it continued to hover near its largest recent deficit reading. Japan now has a string of 12 consecutive monthly deficits on its trade account. These deficits are back in force after a previous string of 22 monthly deficits over 25 consecutive months in 2018-2020. Japan, once the most dominant exporter globally with seemingly structural trade surpluses, has become a persisting-deficit country. What happened?

Japan's trade deficit shifts – explained by oil In 2008, spiking oil prices pushed Japan's trade into deficit. Then oil prices backed off and the Japan's surplus returned. In 2011, Japan was hit with a Tsunami, an earthquake, and a nuclear accident – a trifecta-storm of trouble. With world oil prices fluctuating around $100 per barrel, Japan's trade deficit plunged deeper into the red-ink zone as Japan began to import more oil. By 2012, all Japan's nuclear power stations were shuttered, in response to the natural-disaster-induced nuclear accident and Japan was back dependent on oil imports. In mid-2014, with Japan's deficit well-established, oil prices suddenly collapsed, helping to swing Japan's trade deficit back into surplus. After spot oil fell to a low in May 2016, Japan's surplus shot up. Then, again in April 2020, oil prices fell briefly below $20/barrel and Japan's deficit contracted sharply- and briefly. Since then, Japan's deficit has re-emerged and grown as oil prices have surged. The story of Japan's trade balance is largely a story of oil and Japan's experiences in shutting down its nuclear power plants. Today Japan's trade picture is still painted by the whims of global oil.

The chart (above) shows only the recent deficit behavior. Export and import growth rates each have flattened out with imports holding to higher growth than exports. As a result, the trade situation is deteriorating with the deficit is plunging again and a good part of that is because of oil prices.

The yen has been steadily weakening without much impact on trade flows so far.

Real trade flows Export and import prices both rise at a 20% annual rate over three months, but over 12 months import prices are up by a much stronger 33% compared to 13% for exports. Meanwhile, real export growth has been flat or negative while real imports have accelerated, logging a 14.6% annualized gain over three months.