Japan’s Trade Trends Show Weakening Flows on Both Sides as Deficit Stabilizes

In January, Japan's exports fell by 6.3% month-to-month as imports fell by 5.1%. Export and import trends in Japan show a sliding trend. Nominal exports are stronger by 4.2% over 12 months, but they're falling at a 15.3% annual rate over six months and at a 36.7 annual rate over three months. Imports are higher by 14.2% over 12 months, but over six months they're declining at a 17.4% annual rate and over three months they're falling at a 43% annual rate. Over 12 months imports are stronger than exports, but their annual rate of change is weaker than exports over six-month and three-month horizons.

Within the past year, the trends for the yen have shifted. Against the dollar, the yen is lower by 13.6% over 12 months; however, over six months the yen is rising at an 8.9% annual rate and over three months it's rising at a 38% annual rate. The broad trade weighted yen, gauged against multiple currencies, has fallen by 8.9% over 12 months; it's rising at an 8.3% annual rate over six months; it’s up at a 30% annual rate over three months. The yen's movements against the dollar alone are a little bit more extreme, but its movements against the dollar and other currencies are roughly in sync over these periods.

Export and import prices have been through a bit of a roller coaster; both export and import prices have fallen in each of the last three months and January export prices fell by 1.5% as import prices fell by 2.5%. Over 12 months export prices are higher by 9.2%, but they're falling at a 6.2% annual rate over six months and falling at a 20.5% annual rate over three months. For imports, prices are up 18.2% over 12 months, then fall at a 13.9% pace over six months, and fall at a 36.9% annual rate over three months.

Nominal export and import flows, adjusted for price changes to convert them to real terms, show that the trade picture changes slightly for exports, and more substantially for imports compared to nominal trends. Real exports fall by 4.6% over 12 months, fall at a 9.6% annual rate over six months and fall at a 20.4% annual rate over three months. Real imports fall by 3.4% over 12 months, by 4.1% over six months, and by 9.7% over three months.

The chart shows that there has been a sharp sympathetic decline and both exports and import growth and over the last few months; the impact on Japan's trade deficit has stabilized. during this period. Oil prices fell and have since stabilized and started to rise slightly. The global manufacturing sector has weakened. Japan's main two trade partners remain weak, China and the United States. But China is Japan's largest trade partner and it is now a little better than a month into its new policy which has set aside its previous zero COVID goals. This is allowing China to grow better. The U.S. economy, however, is a very mixed case with the economy weakening but still turning out rapid job growth. Central banks continue to raise rates in the U.S. and in Europe, while the Bank of Japan has held its rates steady. The outlook for world trade is for further slowing in growth. Japan’s trade slowdown will remain a work in progress.