Japan’s trade deficit continues to hover around ¥900 billion per month (tradingeconomics.com has a useful chart illustrating this)–meaning Japan buys about $9 billion dollars more in stuff from foreigners every thirty days than foreigners buy from Japan. That’s not good. It means that either Japan has to sell assets or borrow from the rest of the world to finance the difference.
Part of this is to be expected.
In the late summer of 2012, Japan fired one of the first “arrows” of Abenomics by inducing a 20%+ depreciation of its currency. In theory, and also in practice to a great degree, the first thing that happens after a change like this is that prices shift. Imported goods suddenly become 20% more expensive; Japanese exports become 20% cheaper.
In theory, initially buying intentions don’t change. Japanese buy the same amount of foreign stuff; foreigners buy the same amount of Japanese stuff. So at first, the trade account gets worse, not better–because Japanese pay 20% more for foreign goods, with no increase in foreigners’ activity.
Again in theory, this situation doesn’t last long. Foreigners develop an increased appetite for now-lower-priced Japanese goods and services; Japanese consumers use less now-more-expensive foreign things. They either switch to domestic substitutes or just consume less.
In Japan’s case, we’ve now reached the anniversary of the yen’s depreciation. So far, however, there’s no sign of any trade balance improvement. Arguably it’s still too early to expect visible change. The other alternative is that:
–Japanese demand for imports like food, fuel, industrial raw materials is relatively inflexible, and/or
–Japanese exports are still too expensive even after a 20% price cut.
That wouldn’t be very good at all. If it turns out to be the case, I think we have to expect deeper political/cultural change in Japan, Inc. before we see any trade account improvement.
This is something to keep an eye on.