Japan will take some time reaching trade balance on a sustainable basis

Japan's August exports are expected to have grown by 5.2% yoy (+7.6% yoy in July), while imports likely shrunk by 3.2% yoy during the same month (unchanged from July). As the US economic recovery remains modest and there is uncertainty surrounding the Chinese economy, Japan's export recovery remains weak. 

"Japan's trade deficit is likely to come in at ¥444bn in August. This will be an improvement from the ¥953bn of August 2014. On a seasonally adjusted basis, trade deficit is likely to be ¥370bn, almost unchanged from July. With oil prices having fallen rapidly, the terms of trade are improving, leading to a shrinking trade deficit trend", says Societe Generale. 

Looking ahead, previous yen depreciation should push up exports in volume terms, especially as the US economy is likely to recover. On the other hand, despite the depreciation of yen, the terms of trade are improving, and this should strongly boost corporate profits. 

"However, the market seems to be underestimating this effect. The trade balance is expected to continue to improve. However, it will probably take some time before a trade surplus can be reached on a sustainable basis, as oil prices are no longer dropping and the recovery in domestic demand is likely to support import growth", added Societe Generale.