Japan achieving a sustainable trade surplus will take time

Japan's trade deficit is likely to come in at ¥200bn in September 2015, which marks an improvement on the ¥962bn of September 2014. On a seasonally-adjusted basis, the trade deficit should reach ¥302bn in September, slightly better than the ¥359bn seen in August. With oil prices having fallen rapidly, terms of trade are improving, leading to a shrinking trade deficit. 

Exports in September are expected to have grown by 3.8% yoy (3.1% yoy in August), while imports likely shrunk by 7.1% yoy (vs -3.1% yoy in August). Although Japan's trade deficit is likely to improve as a trend thanks to better terms of trade, Japan's export recovery remains weak because the US economic recovery remains modest and there is uncertainty surrounding the Chinese economy. The total trade amount seems to be growing, but this is only because most settlements are done in USD and the settlement amount is pushed up due to yen depreciation. 

Trade in volume is likely to have decreased in September. Export growth was probably pushed up by front-loaded export orders over the first 20 days of September (preliminary data indicates +5.1% yoy during the first 20 days of the month) ahead of the exceptionally long holidays that took place at the end of the month. If export growth over the last 10 days of September were weak, there is a downside risk to the September forecast. 

BoJ governor Kuroda explained in a press interview following the 7 October BoJ meeting that exports are expected to remain more or less flat for the time being, but after that, they are likely to increase moderately, as the emerging economies move out of their deceleration phase and also thanks to the yen depreciation in the past. However, it will probably take some time to reach that stage. The BoJ's latest Tankan survey confirmed that the business sentiment outlook is deteriorating. There is a larger risk that the Japanese economy will enter an economic downturn if the export recovery is delayed to a large extent. 

"We expect the trade balance to continue to improve in the long term. However, oil prices are no longer falling and the recovery in domestic demand is likely to support import growth. Against this backdrop, it will take some time for a trade surplus to be reached on a sustainable basis", notes Societe Generale.