Japan’s trade balance likely to show surplus again in August

Japan is likely to have recorded a trade surplus of JPY 212 billion in August, a noticeable improvement from the deficit of JPY 568 billion that was recorded in August of last year, said Societe Generale in a research note. The trade balance, on a seasonally adjusted basis, is expected to have come in at JPY 500 billion, representing one tenth consecutive monthly surplus and an additional expansion from the JPY 318 billion in July.

The decline in energy prices until now has reduced import costs and has had an upward impact on the trade balance that cancelled out the downward impact of a strong yen. The expansion in the trade surplus is also mostly because of exports beginning to indicate recovery signs. Exports in August are expected to have dropped 5.5 percent year-on-year, as compared with July’s decline of 14 percent, according to Societe Generale.

The inventory and shipment cycle in electronic components are expected to have bottomed out and began rising again. But the impacts of typhoons hitting Japan in August might have had delayed shipments and might possibly act as a downward force.

Imports in August are expected to have dropped 17.1 percent, a rebound from July’s decline of 24.1 percent. However, imports remain weak. This is mostly due to domestic demand, mainly private consumption, remaining weak, added Societe Generale.

But, going forward, public demand is expected to strengthen and the rise in real wages is likely to begin underpinning domestic demand. Along with energy prices rebounding, imports are expected to have bottomed out. Therefore, the expansion of trade surplus is unlikely to act as a strong appreciative force on the yen, stated Societe Generale.