Japan posts trade deficit in March due to weak yen and oil prices

Japan’s trade deficit persisted in March as imports jumped 31% on the back of soaring oil prices and a weaker yen.

The 412 billion yen ($3.2 billion) deficit for March was lower than the previous month’s 670 billion yen, but was four times analysts’ estimates and a reversal of the 615 billion yen surplus recorded a year earlier for the world’s third largest economy.

The weaker yen helps make Japanese exports more competitive overseas and increases profits when converted from dollars to yen, but it also increases costs for both consumers and businesses.

Exports soared 15% in March to 8.46 trillion yen ($65 billion) while imports were 8.9 trillion yen ($68 billion).

Import costs for fuels such as oil, gas and coal soared just over 80% from a year earlier, while food imports jumped 22% and chemicals 42% . Meanwhile, Japan’s vehicle exports fell 1.2% as the number of vehicles shipped overseas fell more than 14%.

Japanese automakers and other manufacturers are grappling with production cuts due to pandemic-related disruptions in the supply of computer chips and other critical components.

Economists predict a strong rebound once these issues are resolved. But new export orders fell, suggesting export growth remained weak in April, Capital Economics’ Tom Learmouth said in a report.

“And given that there are no immediate signs of the chip shortage easing for automakers, exports are likely to remain weak until later in the year,” he said.

Preliminary data for the fiscal year that ended in March showed exports jumped almost 24%, but were overtaken by imports, which soared 33%. The fiscal year deficit of 5.4 trillion yen (nearly $42 billion) was the highest in seven years.

The Japanese yen weakened against the dollar as the Federal Reserve began raising interest rates to curb inflation which is at its highest level in 40 years. Higher rates attract investors who buy dollars and sell other currencies, such as the yen.

Despite rising import prices, Japan’s central bank has held its key rate at minus 0.1% for years, trying to pull the economy out of the doldrums as the country ages and its population shrinks.

This means Japan is paying more for its imports as the war in Ukraine and growing demand from economies recovering from the pandemic push prices for oil and other commodities higher.

The import bill for fuels such as oil, gas and coal jumped 87% in the last financial year, the figures show.

Crude oil prices are about 40% higher this year alone, with US benchmark crude trading around $100 a barrel and Brent crude, the international pricing base, slightly higher.