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(Bloomberg) — Japan’s industry deficit hit an all-time high in July, with the impact of rising commodities and the yen’s 24-year low adding to obstacles to the country’s economic recovery.
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The industry’s deficit widened to 2. 13 trillion yen ($15. 9 billion) on a seasonally adjusted basis, the Finance Ministry said Wednesday, extending the series of deficits to a 14-month. 14. The industry’s balance sheet is in the red for the longest continuous series since 2015.
Imports increased by 47. 2% over the previous year, driven by continued year-on-year increases in energy prices, while exports increased by 19%, driven by the expansion of shipments of cars and chip production equipment. Both figures exceeded expectations.
The record deficit bodes well for Japan’s economic recovery, as increased imports, especially for energy and food, may dampen domestic activity. While exports have continued to recover, they also face slowdown disruptions in the country’s major trading partners, such as the United States. United and Europe, where governments are actively running to reduce the call to involve runaway inflation.
“Energy remains a dominant element in import earnings, which is not necessarily smart for growth,” said Koya Miyamae, an economist at SMBC Nikko Securities Inc. “Oil costs have calmed down a bit, but energy costs can reduce economic activity. If they continue to increase
The yen’s 24-year low against the dollar in July made imports more expensive and exports cheaper. Trade knowledge showed that the average exchange rate was 136. 05 yen to the dollar, down 23. 1% from a year ago. The yen recently recovered due to US inflation. The U. S. treasury showed signs of a rebound, restricting demand for the dollar.
Due to its dependence on energy and food from abroad, Japan has noticed import costs skyrocketing amid the war in Ukraine and generating problems similar to coronavirus lockdowns in China. The economic slowdown offset the considerations of origin, but the outlook remains uncertain. Imports and exports in July reached record levels in price while remaining relatively unchanged in terms of volume, underscoring the effect of inflation, i. e. on energy costs.
The report shows that exports to the United States increased by 13. 8% and those from Europe increased by 31. 6%. Shipments to China rose 12. 8%, the biggest buildup since February.
“The end of Covid lockdowns in China has boosted exports; this is the most important factor,” Miyamae said. “The export speed and it’s not strong enough for all the losses, but it’s moving in the right direction. “
What Bloomberg Economics says. . .
“The bad news: The balance sheet of the industry is disadvantageous for Japan. Business losses weigh on corporate profits. A larger deficit is likely to reduce GDP expansion in the third quarter.
–Economist, Yuki Masujima
For the full report, click here
Meanwhile, orders for critical machinery, a leading indicator of capital investment, rose 0. 9% in June versus May, the Cabinet Office said on Wednesday. Economists had expected a 1% increase. Over the past year, it has risen to 6. 5%.
Japan’s economy returned to its pre-pandemic length in the current quarter, as a rebound in customer spending led to profits. However, given the uncertainties surrounding the outlook, the government plans to accentuate its economy.
Prime Minister Fumio Kishida ordered more measures to mitigate the effect of inflation, after polls showed his approval score had declined following his cabinet review.
(Updates to raise more main points of the report, comments from economists)
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