May Trade Statistics

◆The trade figures for May 2016 show exports down in value for the eighth straight month, this time by -11.3% y/y mainly due to the fall in export prices. The key factor behind the weak export prices has shifted to yen strengthening from decline in natural resource prices. The value of imports also fell for the 17th consecutive month, declining by -13.8% y/y, although in volume terms they returned to growth for the first time in two months with an increase of +3.6% y/y. Overall, the effect was to push trade balance into deficit by -40.7 bil yen, for the first time in four months. Seasonally adjusted, the overall balance has remained substantially in the black, albeit somewhat reduced month-on-month due to recovery in import volumes and the recovering price of natural resources.

◆Going forward, exports look set to remain range bound, albeit with ups and downs along the way. Household consumption-related demand is relatively strong, buoyed by accommodative monetary conditions worldwide, but corporate sector demand, in the shape of the demand for materials and capital goods, will likely take some time to fully recover as long as capital utilization rates and natural resource prices remain weak. The value of exports and yen-based corporate earnings, both of which have been adversely affected by increasing yen strength since early in the year, will also bear close monitoring from here on.