Japan may delay in reaching trade balance on a sustainable basis

The May trade balance of Japan is likely to show another deficit, confirming that it will take some time to reach a balance on a sustainable basis. 

According to Societe Generale's estimation, Japan's May trade deficit is expected to expand to ¥290bn (was -¥55.8bn in April), which will be an improvement from -¥920bn in May 2014. On a seasonally-adjusted basis, the trade deficit is likely to be -¥235bn, adds Societe Generale. In March, Japan's trade deficit shrunk rapidly and reached balance (¥0), mainly because exports rebounded sharply after falling steeply in February due to the later-than-usual Lunar New Year holiday. 

However, the economic recovery in the US and China remains weak, and exports in April and May are not yet showing strength. In addition, the effect of the fall in oil prices is fading. 

"For these reasons, Japan is likely to report a trade deficit in May for the second consecutive month. Exports are likely to grow by 5.9% yoy (8.0% yoy in April) while imports are likely to fall by 4.5% yoy (-4.2% yoy in April). Looking ahead, yen depreciation will not only push up corporate profit but also exports in volume terms, while the trade deficit is likely to continue to shrink. However, as oil prices are also rebounding, it will take some time to reach a trade balance on a sustainable basis", said Societe Generale in a report on Tuesday.