Japan’s Trade Deficit Continues into Third Fiscal Year Amid Currency Challenges

Japan has recorded a trade deficit for the third consecutive fiscal year, totaling 5.89 trillion yen ($38 billion). The deficit, as reported by the Finance Ministry, is a result of increased costs for energy and other imports, exacerbated by a persistently weak yen.

The primary contributors to Japan’s trade deficit were transactions with the Middle East, particularly Saudi Arabia and the United Arab Emirates, along with Australia and Indonesia. However, Japan managed to maintain a trade surplus with the United States and some European nations. Despite a slight annual decline in exports to China—the first in four years—recent monthly figures indicate a recovery, with exports increasing by 12 percent year-over-year.

The depreciation of the yen has significantly impacted Japan’s trade dynamics, making imports more expensive while simultaneously enhancing the value of exports when converted back to yen. Currently, the U.S. dollar is trading strongly against the yen, significantly higher than the previous year.

Recent data from March 2024 highlights a temporary trade surplus of 366.5 billion yen ($2.4 billion), driven by a 7 percent increase in exports alongside a nearly 5 percent reduction in imports. Notably, exports to the U.S. during this month alone grew by over 8 percent.

The fiscal 2023 trade deficit, although substantial, marks an improvement over the previous year, which saw heightened deficits due to the Ukraine war and surging energy prices. The figure aligns closely with the deficit recorded in fiscal 2021, and shows a shift from the surplus seen in fiscal 2020.

Sector-wise, Japan has continued to import substantial amounts of food, while exporting automobiles, auto parts, and electrical machinery. The easing of coronavirus-related restrictions has also revived Japan’s production and export capabilities, particularly in industries that were previously hampered by supply chain disruptions, such as computer chips. Additionally, booming inbound tourism has provided a boost, contributing positively to Japan’s export statistics.