Japan records smaller trade deficit

Japan’s economy has recorded its 14th consecutive current account surplus, but the number masks weak exports.
The current account, a wide measure of trade including financial flows, recorded a surplus of Y1.65tn in August, bigger than economists’ expectations of Y1.23tn. It had been Y1.8tn in July.

However, the trade deficit was smaller than expected, at Y326.1bn, versus economists’ expectations of Y395.1bn. But it grew from July, when it was -Y108bn.

Exports grew at a 3.1 per cent pace in August from a year earlier, more than halving from July’s 7.6 per cent and also missing economists’ forecasts of 4.3 per cent. That was the slowest pace of export growth since May.

This suggests growth in the current account reflects growth from Japan’s foreign investments, despite the weaker yen being supportive in theory.

Meanwhile other data showed machine orders slumping at their fastest pace in 10 months.

Machine orders – a proxy for private capital expenditures – fell 3.5 per cent in August from a year earlier, with the drop catching economists off guard.

They had predicted a 3.5 per cent increase for the month, building upon a 2.8 per cent year-on-year gain in July.
It was the biggest drop since a 14.6 per cent fall in November 2014.

Month-on-month, orders were down 5.7 per cent in August from a 3.6 per cent decline in July, marking the third consecutive month of retreat.

It’s the weakest pace since a 7.9 per cent drop in April.

Yesterday, the Bank of Japan decided to stand pat on monetary policy, although expectations are growing that the central bank could ramp up its monetary stimulus programme at its late October meeting in a bid to further support the economy. This morning’s data may serve to heighten those expectations given the weak state of business spending.

The yen gained slightly despite today’s mixed data. USD/JPY fell below the key 120.00 yen level in the Asian session.

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