Japan’s exports rise but so does its trade deficit

Japan’s exports jumped by the most since 2010 in July, aiding Prime Minister Shinzo Abe’s efforts to drive an economic recovery even as rising energy costs boosted the trade deficit.

Exports increased 12.2 percent from a year earlier after a 7.4 percent rise in June, the Ministry of Finance said in Tokyo yesterday. Imports climbed 19.6 percent, creating a trade deficit of 1.02 trillion yen ($10.5 billion), the third biggest on record since 1979. The seasonally adjusted deficit widened from June to 944 billion yen.

The stronger exports show Japan’s economy is starting to benefit from a recovery in demand in the U.S. and Europe, and the yen’s 11 percent decline against the dollar this year. The health of the economy will be the key to Abe’s decision in the next month on whether to raise a sales tax to 8 percent in April from 5 percent now, a step that would slow consumption while improving the nation’s finances.

“The weakening of the currency will benefit the economy as it will help companies in the auto and information technology sectors,” said Hiroaki Muto, an economist at Sumitomo Mitsui Asset Management in Tokyo. “I’m not so concerned about the trade deficit because energy prices will fall sooner or later and export volumes will rise as the global economy improves.”

The trade shortfall was wider than a median forecast of 773.5 billion yen in a Bloomberg News survey of 24 economists. The rise in exports was below a median estimate of a 12.8 percent increase.

The increase in imports in July exceeded an estimated 16 percent gain and marked the biggest jump since June 2010.

Japan’s dependence on imported fossil fuels shot up after the government shut most of the country’s nuclear reactors in the wake of an earthquake and nuclear power plant crisis in March 2011.

“Imports aren’t rising in terms of quantity, but prices are going up because of energy costs and the weaker yen,” said Minoru Nogimori, an economist at Nomura Securities.

Exports to the U.S. increased 18.4 percent on year, faster than a 14.6 percent rise in June, while exports to the European Union jumped 16.6 percent after an 8.6 increase in June, boosted by products including cars, machinery and steel.

Toyota Motor, Asia’s biggest carmaker, earlier this month raised its profit forecast for the year ending March 2014 to 1.48 trillion yen, as the weaker yen bolsters the value of Japanese cars sold overseas.

Japan’s growth slowed to 2.6 percent in the April-June period from 3.8 percent in the prior quarter, less than forecast as capital investment fell for a sixth straight quarter.

Abe will make a final decision on the tax after revised second-quarter gross domestic product data is released on Sept. 9. Blooomberg