Economist Taro Kimura said, “We believe that the depreciation of the yen is the biggest reason for the widening trade deficit, because compared to the previous month, the depreciation of the yen boosted imports more than it boosted exports.”
Japan's imports rebounded in April due to the weakening yen, leading to a trade deficit, highlighting the increasingly heavy economic burden brought about by the depreciation of the yen. According to the data, Japan's exports in April increased 8.3% year on year, imports increased 8.3% year on year, and the trade deficit in April was 462.5 billion yen.
As the Japanese automobile industry recovers from the certification scandal, exports have been boosted by car shipments. Exports of semiconductor manufacturing equipment and electronic components such as chips have also increased. Also, imports were boosted by crude oil and aircraft.
The trade deficit is a negative factor affecting domestic manufacturing (GDP), reflecting the growing pain caused by the weak yen. As the exchange rate of yen against the US dollar fell to a 34-year low, most Japanese companies said in a survey that this is becoming a bigger problem because it puts pressure on them to pass on the rising cost of raw materials to customers through price increases.
On the other hand, the weakening yen helped exporters such as Toyota Motor Corporation achieve strong profits, because the weakening yen strengthened the competitiveness of these exporters and increased the value of overseas earnings after being remitted back into Japan.
However, strong demand from overseas markets (particularly the US) has had a complex impact on Japan. Due to strong exports, this may help the Japanese economy resume growth this quarter. However, maintaining a strong US economy may prevent the Federal Reserve from relaxing its policies as many had anticipated, which in turn may support the USD/JPY exchange rate.
Japan's Ministry of Finance said that the average exchange rate of the yen to the US dollar in April was 151.66 yen per US dollar, down nearly 15% from a year ago. Economist Taro Kimura said, “We believe that the depreciation of the yen is the biggest reason for the widening trade deficit, because compared to the previous month, the depreciation of the yen boosted imports more than it boosted exports.”
The weak yen has become the focus not only of trade, but also of the economy and policy making. This has once again raised concerns about cost-driven inflation, which puts pressure on consumption. The Bank of Japan is waiting to see if higher wage increases can help consumers escape the impact of rising living costs, and a rebound in spending may trigger demand-led inflation.