Export mood improves Japan’s trade balance

We expect Japan's March trade deficit to have shrunk and balance of trade at ¥0. Earlier last week also we stated JPY is prepared to snatch healthy gain on its monthly trade surplus of JPY128.2bn since June 2012. Declining import prices likely also played a predominant role, as energy import prices in JPY terms declined 30% yoy in March.

Here are the evidences to substantiate our viewpoint; there is a sharp improvement from -¥1450 bn in March 2014. If this materializes, it will be the first time since June 2012 that Japan's trade has balanced. As this year's Lunar New Year holiday was much later than usual, fluctuations in exports probably had a large influence on the figures. Exports were brought forward to January ahead of the Lunar New Year holiday, but slowed in February due to the push back. As a result, exports in Q1 turned out to be volatile (+17.0% yoy in January, +2.5% yoy in February, and expected at +8.9% yoy in March). Meanwhile, import growth was also volatile during the same period (-9.1% yoy in January, -3.6% yoy in February and an expected -11.3% yoy in March).

As oil prices are declining at a pace faster than the depreciation of any currency, the terms of trade are improving rapidly. In 2015, yen depreciation will not only push up corporate profit but also exports in volume terms. In fact, export growth is exceeding import growth, and we expect the trend of a shrinking trade deficit to continue. On a seasonally adjusted basis, the March trade deficit is likely to be ¥425 bln (was -¥639 bln in February).