Japan to take some time to reach trade balance on a sustainable basis

Japan's July trade balance is likely to have reached a balance (¥0). This would mark a significant improvement from the ¥967bn deficit seen in July 2014. As oil prices have fallen rapidly, the terms of trade are improving, leading to a shrinking trade deficit as a trend. 

"Exports in July are expected to grow by 3.5% yoy (was +9.5% yoy in June) while imports likely shrunk by 10.5% yoy during the same month (after -2.9% yoy in June). As exports were weak last year, export growth this year will be pronounced due to the base effect", says Societe Generale. 

Looking ahead, previous yen depreciation will not only push up corporate profits but also Japanese exports in volume terms, especially as the US economy is likely to recover. 

"Against this backdrop, the trade balance is likely to continue to improve, though it will still take some time before a trade surplus can be reached on a sustainable basis.", added Societe Generale.