Japan’s Merchandise Trade Balance printed better than expected February, showing an 82.4 billion yen monthly surplus versus expectations of a -20.0 billion yen deficit. The improvement came as exports gained a modest 1.3% while imports plunged 22.4% from the preceding month. The uptick in overseas sales may have been encouraged by a -7.9% drop in the value of the Japanese Yen through February, making goods cheaper for foreign buyers. We had expected the improvement having noted after manufacturing sentiment ticked higher for the first time in six months in the same period.
On balance, the overall trade landscape remains decidedly bleak: the decline in export volumes has nearly doubled that of the drop in imports in the year to February, falling -45.4% versus a -25.5% reduction in outbound shipments. Dwindling overseas sales are set to continuing to push Japanese companies to cut back production capacity, boosting unemployment to put downward pressure on consumption and overall economic growth.
Japan’s annual trade surplus with the US, its chief trading partner, shrank to the lowest in 11 years through 2008. The tightening trade gap implies a net outflow of money from Japan and into the US, putting arguing for long-term upward pressure on the USDPY exchange rate.
