Trade deficit shrinks as energy imports fall

Weak exports keep balance in red, in sign of economic ebb


The trade deficit narrowed in May as imports declined for the first time in a year and a half, data showed Wednesday, but weaker shipments abroad helped keep the trade balance in the red.

The figures — which suggest the economy is slowing — reflect a drop in spending after the consumption tax was raised on April 1, a move seen as crucial to paying down the huge national debt but that threatens to stall a budding recovery.

The trade deficit has ballooned since the 2011 Fukushima nuclear crisis forced the shutdown of all reactors and a shift to pricey fossil-fuel imports to plug the energy gap. Nuclear energy had been supplying more than a quarter of Japan’s power.

“The weaker yen had contributed to the widening of the trade deficit last year, as it pushed up import prices by more than it raised the value of exports,” said Marcel Thieliant of Capital Economics. “However, the boost to trade values from the weak yen is now clearly over.”

On Wednesday, the Finance Ministry said the May trade deficit narrowed 8.3 percent from a year ago to ¥909 billion, marking the 23rd consecutive monthly shortfall.

Imports were down 3.6 percent to ¥6.5 trillion, the first year-on-year drop in 19 months as crude oil shipments fell by nearly 20 percent in volume terms.

Domestic demand for gasoline and other products jumped in the months before the consumption tax rose to 8.0 percent from 5.0 percent, as millions of shoppers dashed to stores before prices went up.

May exports fell 2.7 percent to ¥5.6 trillion, the first downturn in more than a year as demand for refined fuel and vehicles fell overseas.

Wednesday’s data were the first major economic figures published since the Bank of Japan wrapped up a two-day policy meeting last week with policymakers holding fire on an expansion of the BOJ’s stimulus program.

The BOJ Policy Board has held steady since launching a huge monetary easing blitz in April 2013 as it gauges the impact of the sales tax hike.

On Friday, the BOJ acknowledged that consumer demand and factory output had taken a hit but insisted that the economy was seeing a “moderate recovery.”

Overseas economies, particularly in major industrialized nations, were also recovering “albeit with a lackluster performance still seen in part,” it said.

The weak exports in May, however, are likely to raise further questions about the strength of demand.

Second-quarter economic growth is expected to come in weaker than the 1.6 percent expansion between January and March, as the pre-tax spending rush gives way to caution among ordinary people who face higher prices and creeping inflation.

If the lackluster trade figures are followed by other signs of a slowdown, such as a further drop in factory output or a fall in consumer spending, it could set off a renewed focus on the BOJ’s timeline for further easing.

Last month, the International Monetary Fund raised the prospect of a longer than expected timeline for the BOJ’s stimulus plan.

“The current aggressive pace of monetary easing may need to be maintained for an extended period,” the IMF said in its annual review of Japan’s economy.

It added that the “BOJ should act quickly if actual or expected inflation stagnates or growth disappoints.”