June 18, 2014 10:14 am JST

Japan trade deficit shrinks in May following tax hike

TOKYO (Kyodo) -- Japan's goods trade deficit shrank in May for the second straight month, as imports were tepid with the first consumption tax hike in 17 years from April 1 dragging down personal spending and industrial output at home, the government said Wednesday.

     The nation's exports also slid for the first time in 15 months amid weakening international competitiveness of Japanese companies, dampening optimism that the negative impact of the 3-percentage-point tax increase to 8 percent could be eased by healthy external demand.

     The country's trade deficit stood at 909.0 billion yen last month, marking the 23rd straight month of red ink but contracting 8.3 percent from a year earlier, the Finance Ministry said in a preliminary report.

     The value of imports fell 3.6 percent to 6,516.5 billion yen, down for the first time in 19 months, with those of crude oil plunging 15.1 percent and of coal plummeting 24.4 percent, suggesting production activities have been petering out after the tax hike.

     Exports, meanwhile, decreased 2.7 percent to 5,607.6 billion yen, as those of marine vessels and automobiles dropped 32.5 percent and 4.3 percent, respectively. Car shipments fell for the first time in 14 months, the ministry said.

     The yen slid against the U.S. dollar only by 2.9 percent year on year to 102.12 yen in the reporting month.

     A falling yen usually supports exports by making Japanese products cheaper abroad and boosts the value of overseas revenues in yen terms, though it drives up import prices. Japan depends on imports for more than 90 percent of its energy needs.

     Chief Cabinet Secretary Yoshihide Suga, the government's top spokesman, said at a press conference that the nation's trade balance is expected to improve with exports recuperating on the back of a recovery in the global economy.

     Japan's trade balance, however, may remain in the red for the time being, as demand for natural resources has been robust from utilities bolstering fossil fuel-based power generation as an alternative to stalled nuclear power in the wake of the accident at the Fukushima power plant in March 2011, analysts said.

     The size of Japan's trade deficit is likely to diminish given a slowdown in imports, but a shrink in exports -- accounting for around 15 percent of gross domestic product -- may prevent the nation's trade balance from turning into the black, they added.

     In May, exports to China, Japan's biggest trade partner, gained 0.4 percent to 1,049.7 billion yen, while imports from China were down 2.7 percent to 1,419.1 billion yen, registering the first drop in 17 months.

     Shipments to the United States declined for the first time in 17 months, down 2.8 percent to 1,010.7 billion yen, and imports fell 0.5 percent to 611.2 billion yen.

     Exports to the European Union grew 14.5 percent to 606.0 billion yen, and imports increased 5.7 percent to 652.8 billion yen.

     The figures were measured on a customs-cleared basis.