Japan, the third-largest economy, recorded a monthly trade deficit of JPY2.38 trillion ($17.8 billion) in May 2022. According to the Ministry of Finance Japan, the country’s exports in May 2022 increased 15.8% YoY, while imports increased 48.9% YoY. With imports being greater than exports, Japan reported the largest trade deficit in a single month since January 2014.
Japan Trade Overview
Exports from Japan grew from $764.2 billion in 2020 to $810.5 billion in 2021, while imports increased from $810.2 billion in 2020 to $1,009.8 billion in 2021. The country’s trade deficit increased from $46.1 billion in 2020 to $199.3 billion in 2021. According to the United Nations Comtrade database, nuclear reactors, boilers, and machinery were the largest export items of Japan in 2021, which accounted for 19.5% of the total exports, followed by vehicle manufacturing with 18.2%. Mineral fuels and mineral oils were the top import items, which accounted for 20% of total imports in 2021. China, the US, and South Korea were the top three trading partners of Japan in 2021, accounting for 42.7% of Japan’s total trade (exports and imports).
Increasing Trade Deficit
Japan’s trade deficit increased in recent years owing to the spiraling costs of fuel and raw materials and supply chain disruption caused by the COVID-19 pandemic. In the global inflationary environment, the ultra-low interest rates by the Bank of Japan are causing a decline in the value of the yen. With the yen falling to a 20-year low against the dollar, imports became costlier. Meanwhile, the Russia-Ukraine conflict resulted in the imposition of sanctions on Russia by the EU, which increased the prices of oil and gas. This led to higher costs for a country that is heavily dependent on imported fuels to augment its economy. The overall imports increased due to the increase in the supply of oil from the UAE coal and liquefied natural gas (LNG) from Australia.
Outlook
In order to improve the trade balance, the Japanese government has been adopting a number of policies to promote international trade and expand its trade ties with more countries. To prevent the further depreciation of the yen, the Bank of Japan is expected to relax its interest rate. The government would be able to reduce the cost of energy imports by reopening the dormant nuclear reactors.
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