Japan suffered its worst annual trade deficit as export growth last month slowed to its weakest in a year, suggesting a rapid loss of economic momentum that may prompt central bank policymakers into early action as a national sales tax hike puts more strain on growth.
Exports rose 1.8 per cent last month from a year earlier, following a 9.8 per cent on-year gain in the previous month, Ministry of Finance data showed yesterday. That was well below a 6.3 per cent increase forecast in a poll of economists.
Shipments to China, a major export market for Japan, rose 4.3 per cent last month from March last year, a marked slowdown from the 27.6 per cent on-year increase in February. Exports to the United States grew a modest 3.5 per cent, the slowest on-year gain since December 2012, when it fell 0.8 per cent.
Imports grew 18.1 per cent last month, boosted by elevated costs of fuel due to a weak yen and the last-minute demand before the April 1 tax hike, well above the 16.2 per cent gain forecast by economists and following a 9 per cent rise in February.
That resulted in a trade gap of ¥1.45 trillion (S$17.5 billion) in March, marking a record 21-month run of deficits. The weak external shipments helped push Japan’s trade deficit to a record ¥ 13.75 trillion for the fiscal year that ended in March, further undermining the balance-of-payments position.
The Bank of Japan (BOJ) has repeatedly ruled out fresh easing measures in the near term, insisting that the economy is on track to meet its 2 per cent inflation target despite recent soft data hitting investor confidence.
However, the double whammy of weak external demand and a chill in domestic consumption from the sales tax hike to 8 per cent from 5 per cent add pressure on the BOJ to act sooner rather than later.
Policymakers are counting on exports — a key driver of the Japanese economy — to help cushion any slide in domestic demand after the sales tax rise. The signs are not good, though. The latest report joins a recent string of soft economic data, including capital spending and private consumption, which have kept alive expectations for the BOJ to add to last April’s intense burst of monetary stimulus.
Citigroup economist Naoki Iizuka said: “If sluggish exports persist and domestic demand slumps more than expected in April and May, the BOJ could ease policy further as early as in June or July.”