In January, Japan’s exports surged by 11.9% compared to the same period last year, exceeding the 9.5% increase anticipated by economists in a Reuters poll. Meanwhile, imports decreased by 9.6%, a larger decline than the expected 8.4% decrease. The trade balance recorded a deficit of 1.758 trillion yen ($11.73 billion), slightly lower than the forecasted deficit of 1.926 trillion yen.
The stronger-than-expected export growth in January provides a welcome boost to Japan’s economy and may influence the Bank of Japan (BOJ) as it considers the possibility of ending its negative rate policy. This growth was driven by a variety of factors, including increased demand for Japanese goods from overseas markets. Additionally, imports continued to decline for the tenth consecutive month, largely due to decreases in coal and liquefied natural gas imports.
The timing of the lunar new year holidays led to a distortion in year-on-year export comparisons, as it boosted exports to China. Consequently, the trade balance shifted to a deficit of ¥1.76 trillion ($11.7 billion) from a revised surplus of ¥68.9 billion in December.
The increase in exports, following a revised 9.7% rise in December, is viewed positively for Japan, especially after the economy unexpectedly slipped into recession in the last quarter of 2023 due to sluggish domestic spending.
The indication that external demand remains relatively stable is expected to support the belief in the market that the Bank of Japan (BOJ) can proceed with its plans to normalize monetary policy, a move anticipated by many economists to occur by April. The BOJ’s policy board has recently aimed to reassure markets that the first rate hike since 2007 will not lead to drastic changes, as policy settings will continue to be accommodative.
“Demand for electronic products and semiconductor manufacturing equipment is rebounding, and the decrease in imports indicates that inflation is stabilizing, which in turn is bolstering consumer sentiment,” commented Harumi Taguchi, principal economist at S&P Global Market Intelligence. “I believe the Bank of Japan can maintain its stance of considering interest rate hikes in April if it can verify strength in wages.”
Governor Kazuo Ueda reiterated last week his stance that the bank will carefully analyze data to assess whether the gradual economic recovery will persist.
“Strong shipments of automobiles and semiconductor-related products continue to support exports, countering weak domestic demand,” noted Taro Kimura, economist at Bloomberg Economics. “This suggests that external demand could mitigate what appears to be a third consecutive quarter of contraction in GDP (gross domestic product) in the first three months of 2024.”
The figures released on Wednesday showed overall solid performance compared to the previous year. Exports to the United States increased by 15.6%, supported by the sales of cars and medical devices, marking the 28th consecutive month of growth. Exports to the European Union also saw a significant rise of 13.8%, while exports to China surged by 29.2%. This increase in exports to China was influenced by a higher number of working days in 2024 compared to the previous year, attributed to the timing of the lunar new year.
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