Japan Records Third Consecutive Fiscal Year Trade Deficit, Driven by Rising Energy Costs

Japan has reported a trade deficit for the third consecutive fiscal year due to increasing energy and import costs, combined with a weakened yen. The deficit for the fiscal year ending in March stood at 5.89 trillion yen ($38 billion), based on data released by the Finance Ministry. The trade imbalance was most significant in the Middle East, particularly with Saudi Arabia and the United Arab Emirates, as well as with Australia and Indonesia. Conversely, Japan maintained a trade surplus with the U.S. and certain European nations.

Annual exports to China experienced a slight decline, marking the first decrease in four years. However, recent monthly data indicate a rebound, with exports to China growing by 12% compared to the previous year. This resurgence in exports was primarily driven by strong technology-related exports, particularly to China, while exports to other regions also showed significant growth. Analysts, such as Robert Carnell, the regional head of research Asia-Pacific at ING Economics, anticipate that exports will be the primary growth driver in the coming months, further bolstering the economy.

The fluctuation in the value of the Japanese yen significantly influenced the trade balance. The depreciation of the yen led to higher costs for importing goods, while simultaneously increasing the value of exported goods when converted to yen. Notably, the U.S. dollar has been trading above 150 yen, representing a considerable rise from the 130-yen mark observed a year ago. The released data for March revealed a trade surplus of 366.5 billion yen ($2.4 billion), attributed to a 7% growth in exports and a nearly 5% decrease in imports. Exports to the U.S. saw a particularly strong increase of over 8% in March.

The trade deficit for fiscal 2023 was notably lower than the deficit incurred in fiscal 2022, which was influenced by the conflict in Ukraine and escalating energy prices. Conversely, it closely resembled the deficit recorded in fiscal 2021.

Challenges related to the COVID-19 pandemic, such as securing essential parts including computer chips, had previously hindered Japan's production and exports. However, these challenges have gradually subsided. Japan predominantly imported food items and exported automobiles, auto parts, and electrical machinery. Additionally, the thriving inbound tourism sector has statistically contributed to the export figures.