Japan sank into a trade deficit last month as exports dropped, especially to other Asian nations

Japan suffered a trade deficit last month as exports sank for the first time in more than two years, dragged down by a slowdown overseas.

Japan's trade deficit totalled 78.7 billion yen (USD 539 million), the Finance Ministry said Thursday, the first trade deficit for the world's third largest economy in two months.

Exports shrank most markedly for the rest of Asia, including China, Singapore and Taiwan, declining 0.3 per cent from the same month the previous year to 8.73 trillion yen (USD 60 billion).

Exports recovered in autos and auto parts, as the social restrictions related to the COVID-19 pandemic, which had crimped production, eased gradually.

But that was not enough to offset the drop in exports in computers, computer chips, machinery and other manufactured goods.

Imports fell in various sectors, including food, machinery and energy, slipping 13.5 per cent from the previous year to 8.8 trillion yen (USD 60 billion), according to the ministry.

Imports to Japan dipped not only from Asia but many other nations, including the US, Mexico, the countries in the Middle East, as well as Russia.

July's trade deficit was still far smaller last month than what Japan racked up in the same month the previous year, or about half.

Import costs ballooned last year on the back of surging fuel costs, as well as the weakening Japanese yen, which raises the value of overseas spending when converted into yen.

The yen continues to be weak, trading at about 146 yen to the US dollar lately. That likely means worries will persist about the strength of Japan's economic recovery.

A key factor for Japan is the strength of the Chinese economic rebound from the damage related to the pandemic. Some analysts say China's rebound is shaky.

The relatively pessimistic read on Japan's trade follows a bit of brighter news that came earlier this week, in which the government said that Japan's economy grew at an annual pace of 6 per cent in April-June, marking the third straight quarter of growth as exports and inbound tourism recovered.

Japan's marking a trade surplus in June had set off hopes that the economy may be headed toward a recovery from the strain of the coronavirus pandemic.

I sense the export decline to China is worse than the worldwide decline, although they are related. We also need to assess the impact US-China tensions may be having on trade, Sayuri Shirai, professor of policy management at Keio University, said in a commentary in the Nikkei newspaper.