Adding to the recent woes of the previously impregnable Japanese yen was the announcement overnight that Japan registered a record trade deficit last month. The seasonally-adjusted trade shortfall reached JPY 0.61trln in January, extending a run of deficits that commenced in April last year. Over this period, the cumulative trade deficit is JPY 4trln, or around USD 50bln.
Weighing heavily on Japan’s trade performance over the past year has been the strength of the currency, which has seriously damaged competitiveness. In the year ended January, customs-cleared exports fell by more than 9%. Also impacting adversely on the trade sector is a general decline in productive capacity in the aftermath of last year’s tragic earthquake and subsequent tsunami. The latter has contributed to a rise in imports to compensate for the lost production. Also, higher energy prices are adding to the import bill. Total imports rose 10% YoY in January.
Some care is required when analysing January’s figures because the Lunar New Year holidays fell in January, which reduced the number of trading days. In seasonally-adjusted terms, exports fell only slightly while imports were up 0.4%. Notwithstanding this qualification it is clear that Japan’s trade competitiveness has suffered enormously over the past year.
Thankfully, the currency is starting to pay attention. USD/JPY almost reached 80 overnight. It would not surprise to see higher levels over coming months once March fiscal year-end flows are complete.