Japan’s import growth shoots to 12.3% in May

The supply chain in Japan is slowly recovering and import demand is strengthening. Based on the custom trade data released yesterday, export growth remained negative in YoY terms in May at -10.3%, but the sequential growth has returned to positive territory at 2.5% MoM sa after plunging for two consecutive months in Mar-Apr.

Export data reaffirms that the private sector in Japan has started to mend the supply chains. In fact industrial output has already bottomed out in April at +1.6% MoM sa. As export shipments followed to recover in May, it means that the disruption impact on the supply chains in the neighboring Asian countries should also have begun to wane, albeit slowly.

On the other hand, Japan’s imports reported a strong growth of 12.3% YoY in May. On the sequential basis, imports have increased by more than 2% MoM sa for two straight months in Apr-May. Imports of mineral fuels were particularly strong at 25.2% YoY due to rising demand on petroleum and LNG to substitute nuclear power.

Imports of manufactured goods including iron, steel and nonferrous metals also registered strong gains at 22.5%, probably suggesting that the preparation for postquake reconstruction of housing and public infrastructures is already underway. As such, strong demand was reflected in imports from the resources-rich Asian economies such as Malaysia with 21.9% YoY and Indonesia with 16.3%.

Going forward, both export and import growth will likely gather pace as the manufacturing supply chain recovers and the progress of infrastructure reconstruction accelerates.

The uncertainties on the outlook for exports seem to be higher than on imports however, considering the softness in overseas demand and the appreciation pressures on the Japanese yen. As exports have underperformed imports, trade balance registered a deficit of JPY 465bn in April and another JPY 854bn in May.

Trade deficit is likely to continue in the near term, but the overall BOP should remain healthy thanks to the fund repatriation by local insurance companies. The BOJ’s timely response of providing liquidity support has also helped to keep monetary conditions accommodative.