Japan’s seasonally adjusted trade balance likely remained in surplus in January

Japan is likely to register trade balance of -JPY727bn in January 2016, after posting a surplus of +JPY140.2bn in December. On an annual basis, this will be rebound from -JPY1,174bn in January 2015. Even though exports are expected to have weakened in the month, imports are likely to have remained on the same trend. Hence, trade balance tends to indicate a huge deficit in January due to seasonal factors.

However, on a seasonally adjusted basis, Japan is expected to register a small surplus of JPY8bn in January. The terms of trade have rebounded considerably due to significant decline in oil prices. Furthermore, decline in yen has led to strong export growth, as compared with import growth in real terms. If oil prices continue at the same level, trade surplus will be sustainable. Even of oil prices rise gradually, there is a likelihood that Japan might maintain a trade surplus if the rebound in export continues.

"We expect export growth to decline to 8.9% yoy in January after -8.0% yoy in December. Automobile exports to the US are particularly firm (though there are short term fluctuations). We could also see a recovery in exports to Europe. Moreover, we can expect weak exports to Asia to bottom out", says Societe Generale.

Moreover, the Bank of Japan raised its assessment on exports to "picking up" from "more or less flat". However, since January there has been an increase in market uncertainty. Meanwhile, import growth is expected to have dropped by 13.5%, the fifth consecutive monthly fall of over 10% y/y. The trend of weak import growth is becoming strong due to further drop in oil prices since January.