Japan’s trade balance likely to have improved noticeably in May

Japan’s trade balance is likely to have improved markedly in May. The country is expected to record a trade surplus of JPY 70 billion in May, as compared with the deficit of JPY 220 billion recorded in May 2015, said Societe Generale in a research report. The trade balance, on a seasonally adjusted basis, is expected to come in at +JPY 10 billion, the seventh straight month of surplus. The trade surplus' likelihood of ‘near zero’ is mainly because of technical factors.

The impact of closedown of factories because of the Kumamoto earthquake in mid-April has not vanished entirely. Furthermore, several factories were not operating for a longer period than usual due to the calendar factor in early May.

Therefore, it appears that delays in shipments exerted downward pressure on exports. However, despite such downward pressure, exports are expected to have dropped 9.4 percent year-on-year in May, as compared with decline of 10.1 percent percent year-on-year in April, according to Societe Generale.

“As global uncertainties in growth and markets have eased, we see signs of a cyclical bottoming out of exports,” noted Societe Generale.

Meanwhile, there has been a considerable decline in energy imports, reflecting a decline in oil prices and the impacts of energy-saving by the Japanese. Imports are expected to have dropped 14 percent y/y last month as compared with the decline of 23.3 percent y/y seen in April. This would be the 17th straight month that imports have declined.

Japan’s trade balance has been in deficit as energy imports rose after the 2011 earthquake disaster. But, energy costs are likely to remain low as prices have recovered gradually. Exports are expected to rebound as developed nations continue to indicate signs of rebound in economy, while developing economies are slowly moving out of the deceleration phases, added Societe Generale. Hence Japan’s trade balance is likely to remain in a small surplus.