Boosted by the weak yen, Japan's exports grew for the fifth month in a row in April, but the growth rate fell short of expectations, and the trade balance fell into deficit in April.

Japan's economy lost its growth engine

On May 22, Japan's Ministry of Finance released preliminary trade data for April.

Import valueThe year-on-year increase was 8.3% to 9.44 trillion yen, and in March it fell 4.9%, the first increase in two months.

Export valueThe year-on-year increase was 8.3% to 8.98 trillion yen, up 7.3% in March, the fifth consecutive month of growth, but lower than expected. Among them, exports to the US and China increased, while exports to the EU fell 2%.

This has also led to JapanApril trade deficitAt 462.5 billion yen, the first deficit in two months, the deficit increased 7.6% from the same period last year.

Under pressure from high inflation, Japanese consumer spending has remained weak in recent months.

Japan therefore expected exports to offset weak domestic consumption, but due to weak external demand,Japan's GDP contracted in the first quarter.

Last week's data showed that Japan's economy contracted by 2% in the first quarter, with domestic demand falling 0.2% month-on-month and external demand falling 0.3% month-on-month during the quarter. Japan's exports fell 5.0% month-on-month and imports fell 3.4% month-on-month during the quarter.

When domestic demand and external demand both contribute negatively, this resultsThe Japanese economy has lost momentum for growth,Also forThe prospects for the Bank of Japan's policy normalization are overshadowed.

The trend of the yen

Pursuing higher wages and sustained inflation to drive sustainable growth is viewed by the Bank of Japan as a prerequisite for getting rid of near-zero interest rates.

However, as the yen continues to weaken,The Bank of Japan is facing a difficult choice.

Since this year, the yen has been declining steadily, and the US dollar has continued to be strong against the yen. At one point, the 160 mark hit a new high in 34 years.

This has also made Japanese officials keep a close eye on the foreign exchange market, ready to intervene in response to insane currency speculation.

However, interest spreads between the US and Japan are speeding up the depreciation of the yen.

Meanwhile, in an environment where the yen is weak, speculation that the Bank of Japan will raise interest rates in June intensified. The Bank of Japan may need to set a more hawkish interest rate trajectory to keep USD/JPY down.

Currently, market expectations for the Bank of Japan to raise the benchmark interest rate in July have risen from about 50% at the beginning of this month to about 70%.

On the other hand, the yield on Japanese treasury bonds has continued to rise recently. Yesterday, the yield on Japanese treasury bonds hit an 11-year high.

The reason is that the market expects that the Bank of Japan may reduce the scale of debt purchases in the next few months to support the weakening yen.

Jane Foley, foreign exchange strategist at Rabobank, saidThe yen may strengthen if the Federal Reserve cuts interest rates.

“This result will ease some of the upward pressure on the dollar against the yen, especially if the Bank of Japan raises interest rates again this year.”

She pointed out that people are speculating that the Bank of Japan may tend to move faster than previously anticipatedRaise interest ratesorReduce the size of debt purchases.

If the information from the Bank of Japan meeting in June indicates that the policy will be tightened in the future, USD/JPY may fall from above 156 to 152 within a month, and may reach 145 in 12 months.

Goldman Sachs strategists expect the yield on Japan's 10-year sovereign bonds to rise to 2% by the end of 2026, as they expect the Bank of Japan to implement a “long-term” austerity cycle. According to the latest report, they expect the Bank of Japan to raise interest rates to 1.25%-1.50% by 2027.

However, Japan's Finance Minister Shunichi Suzuki recently stated,There are pros and cons to a weak yen, and there are currently concerns about negative effects.

Shunichi Suzuki said that market discussions focused on rising long-term interest rates and on Japan's appropriate treasury bond policy. People want wages to rise faster than inflation. He said that he is closely monitoring foreign exchange trends.