Massive July trade deficit ill portent for global economy

AFP-JIJI

Japan’s trade with the rest of the world in July showed a shortfall of ¥517.4 billion, the largest-ever deficit for the month and nearly double the ¥275 billion deficit that had been forecast, figures showed Wednesday.

Sagging markets in Europe and Asia left Japan with a much worse than expected trade deficit, ringing alarm bells over the perilous state of the global economy.

The debt crisis in Europe and slowing demand in Asia are taking their toll, with analysts sounding warnings that conditions are getting “even more serious.”

The figure also marked a drastic reversal of June’s numbers, when Japan recorded a small but respectable surplus of ¥60.3 billion.

The data showed “the recent trend in which weakness in China and Europe has been putting major downward pressure on Japan’s trade is getting even more serious,” said Takahiro Sekido, Japan strategist of global markets research at Bank of Tokyo-Mitsubishi UFJ.

The latest figures “indicate that they are not just risks anymore but a reality,” he told Dow Jones Newswires, adding the result may encourage the Bank of Japan to take “pre-emptive” action to shore up the economy.

He said he expects the next monetary easing moves by the central bank to come in late October, when it is slated to release a semiannual outlook report.

Overall exports slid 8.1 percent to ¥5.31 trillion, with shipments of electronic parts falling, even as automobile exports rose.

By region, exports to the European Union plunged 25.1 percent year-on-year amid the debt crisis. Imports from the EU rose 10.6 percent, leaving Japan with a deficit of ¥95.2 billion with the embattled economic zone.

Exports to China fell 11.9 percent against a 3.3 percent rise in imports, making Japan’s deficit with its biggest trading partner nearly double that in June at ¥250.1 billion.

Combined exports to other leading economies in Asia — South Korea, Hong Kong, Taiwan and Singapore — fell a sharp 14.2 percent.

U.S.-bound shipments rose 4.7 percent, slower than the 15.1 percent rise in June, while imports turned up 7.6 percent.

Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting, said, “exports to the United States were not as strong as we had expected, while those to Europe and Asia remain subdued.”

Japan’s trade will continue to show a deficit “as we’ll see more increases in imports due to higher energy prices” he said, but added a pickup seen in the U.S. economy provided some hope.

Overall imports rose 2.1 percent to ¥5.83 trillion on the high cost of liquefied natural gas.