A Strong Yen And Falling World Demand Lead To Deficit In Japanese Foreign Trade

Japan announced today a 233 billion yen deficit in its foreign trade for the month of November. Monthly deficits in foreign trade are rare in Japan and this was the third deficit in the last four months. On a three month moving average of the seasonally unadjusted data, the results of the last few months are even more dramatic as can be seen in the first chart. These deficits of recent months are the first to have occurred since the late seventies and early eighties.

Exports were 27% below November 2008 due in part to the slowing of world demand and also to the rise in the yen. The rise in the yen over the past few months is compared with the performance of the dollar, the euro and the U.K. pound in the second chart. Between August 7 and December 19 (The recent low for the yen and the most recent), the broad trade weighted yen appreciated 32%, while the euro was virtually unchanged, the dollar was up 10% and the pound was down 18%. While a higher yen might ordinarily lead to higher imports, the current low level of the propensity to consume in Japan has actually resulted in a decline of 14% in imports from a year ago.