Forex Flash: Japan incurs largest trade deficit since 1979 – RBS

FXstreet.com (Barcelona) - Japan incurred a JPY 8,169.9bn trade deficit in FY12, the largest deficit for comparable data available since 1979 and significantly exceeding the previous year's JPY 4,422bn deficit. According to the RBS Research Team, “Stronger demand for thermal-fired power plant fuel accompanying nuclear plant suspensions since the Great East Japan Earthquake event raised import value, and exports contracted due to weaker demand in Europe from declining growth and setbacks from slower economic activity in China and strained Japan-China political ties.”

Japan also recorded a trade deficit with ASEAN, a major export destination, in addition to setbacks in Europe and China. We see a good chance of an improvement in Japan's trade balance as enhanced price competitiveness from the weak-yen effect boosts export volume as long as it avoids significant changes in the Asian supply chain and structural expansion of fuel demand.

However, “the export volume stimulus from yen depreciation might not be as extensive as in the past if competitiveness has already dropped sharply. This situation might delay trade balance improvement even if we assume a fixed level of fuel imports.” the team warns.