July 25, 13:00 JST, 2016

Japanese exports to EU is gaining strength

Japan's trade surplus was 335 billion yen in June after a seasonal adjustment, up slightly from 295 billion yen in May. It is the 8th consecutive month in a trade surplus. Japan ran a trade deficit between March 2011 and October 2015, but managed to recover a surplus since November 2015. 

The month of June seems to have been a good month for exporters. The export volume was up by 6% in June from May, after a seasonal adjustment. Exports to EU are doing better, especially in comparison with exports to China. Over the last three years, Japanese exports to EU seem to be on a moderate upward path, while exports to China continues to stagnate. 

The strength of Japan's export to EU is welcome, but it alone will not be sufficient to drive up the overall performance of Japan's export. In 2015, exports to EU accounted for mere 10% of the overall export of Japan. The sustainability of the recovery in Japan's export to EU is also suspect due to the Brexit and how it could affect demands in the EU area. 

It would also be a mistake to attribute the recovery in Japan's trade balance to the strength of exports. Even after the recovery in June, the export volume is still lower than the average in 2014. The chief reason for the recovery in Japan's trade balance is the decline in energy prices and its consequent decline in Japan's import bill.

In the Abenomics context, the export activity was one of the important conduits through which a sharp yen depreciation was supposed to provide a reflationary boost to the economy. Between 2004 to 2007, Japan's export volume did expand in steps with a sharp depreciation in yen, In 2012-2015 however, such boost failed to materialize and now that the yen is reversing its direction, we probably need to count out the export activity as a tool for reflation. The surprising insensitivity of the export volume against the exchange rate movements is one of the largest upset in Japan's effort to relate itself.