Japan logs trade deficit in March on weak yen, costly oil

Japan logs trade deficit in March on weak yen, costly oil thumbnail

Japan has reported a much bigger than expected trade deficit for March as a weaker yen and high oil prices pushed costs of imports sharply higher

April 20, 2022, 8: 54 AM

4 min read

Japan’s weakening yen raised further alarm in Tokyo on Wednesday as the government reported a bigger-than-expected trade deficit largely due to soaring costs for imports of oil, food and other necessities.

The deficit of 412 billion yen ($3.2 billion) for March was lower than the previous month’s 670 billion yen but was quadruple analysts’ estimates and a reversal of the 615 billion yen surplus recorded a year earlier for the world’s third-largest economy. The weaker yen makes Japanese exports more competitive overseas, and it increases profits when they’re converted from dollars to Japanese yen. However, it also raises costs for both consumers and businesses.

Japan’s Finance Minister Shunichi Suzuki and other leaders expressed concern about the sudden rise in the dollar. They said that abrupt changes to exchange rates increase business risks.

Earlier, the concern was that the dollar would rise to the 130 yen level by the year’s end, Richard Katz, editor-in-chief of The Oriental Economist, said in a commentary.

But, Katz stated that “the specter of a out-of-control flight by the yen has set off alarm bells in Tokyo.”

Suzuki was scheduled to meet this week with U.S. Treasury Sec Janet Yellen to discuss currency issues. However, it’s unclear what Washington could do to help the Fed bring down inflation.

The Japanese yen has weakened against the dollar as the Federal Reserve has begun raising interest rates to tamp down inflation that is at 40-year highs. Investors who buy dollars and then sell other currencies like the yen will be attracted by higher rates. Despite rising import prices, Japan’s central banks has maintained its key interest rate at minus 0.1% over the years. This is to help the country get out of its economic slump as it ages and shrinks.

Top financial leaders of the Group of 20 industrialized economies are due to meet in Washington on Wednesday on the sidelines of meetings of the International Monetary Fund and World Bank. Hirokazu Mattsuno, Japan’s chief cabinet secretary, said that the government would communicate closely with the United States and other monetary authorities to respond appropriately.

“We want to monitor the currency’s levels with a sense urgency,” Matsuno stated. He pointed out that Japan, the U.S., and other Group of Seven countries have all agreed that the exchange rates should be determined by the markets.

Japan’s exports climbed 15% in March to 8. 46 trillion yen ($65 billion), helped by a recovery in demand as coronavirus outbreaks wane and governments lift pandemic restrictions on travel and other activity. Imports rose 31% to 8.9 trillion yen ($68 billion). Imports account for less than a fifth Japan’s economic activity, but almost all of Japan’s oil, gas, and coal.

Costs for imports of fuels like oil, gas and coal soared just over 80% from a year earlier in March, while imports of food jumped 22% and those of chemicals rose 42%. Meanwhile, Japan’s vehicle exports slipped 1.2%, with the number of vehicles shipped overseas dropping more than 14%

Japanese automakers and other manufacturers are struggling with production cuts due to pandemic-related disruptions in supplies of all-important computer chips and other components.

Economists are forecasting a strong rebound once such problems subside. According to Capital Economics’ Tom Learmouth, data shows that export orders have dropped in recent months, which suggests that export growth has remained slow in April.

” And since there is no immediate sign that chip shortages are easing for carmakers’, exports will likely remain weak until later this year,” he stated.

Preliminary data for the fiscal year that ended in March showed exports jumped almost 24% but were outpaced by imports, which climbed 33%. The fiscal year deficit of 5.4 trillion yen (nearly $42 billion) was the highest in seven years.

The Bank of Japan attempted to slow down the yen’s decline and could have relied on its vast foreign exchange reserves to sell dollars in order to buy yen. Economists warn that there are limits to this intervention and it’s not clear how effective it might be. This means Japan is paying more to import oil and other commodities due to the war in Ukraine and rising demand from countries recovering from the pandemic.

Japan’s bill for imports of fuels such as oil, gas and coal surged 87% in the last fiscal year, the figures showed.

Crude oil prices are about 40% higher in this year alone, with U.S. benchmark crude oil trading around $100 to the barrel and Brent crude, the international basis for pricing, slightly higher. The finance minister, Suzuki, stated earlier this week that a weakening yen is undesirable in a situation such as the current one. Companies are still not raising wages and prices enough to compensate.

ABC News

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