Japan's trade deficit narrowed sharply in May from a year earlier because of lower costs for imported oil and gas, but exports also slowed as demand softened in China.
The Finance Ministry said Wednesday that the deficit in May was 216 billion yen ($1.7 billion), compared with 917.2 billion yen a year earlier but exceeding the 55.8 billion yen deficit in April.
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Exports rose 2.4 percent to 5.74 trillion yen ($46.5 billion) while imports sank 8.7 percent to 6 trillion yen ($48.4 billion). Exports rose year-on-year at an average pace of 9 percent in January-April after rising at a 6.2 percent pace in the latter half of 2014.
Japan's exports to the U.S., its biggest overseas market, rose 7.4 percent in May to 1.09 trillion yen ($8.8 billion). Imports climbed 11.5 percent. Exports to China rose 1.1 percent, while imports from China were up 1.5 percent from a year earlier.
The plunge in the price of crude oil over the past year has gradually reduced costs for imports of oil and gas, though that effect has likely run its course now that benchmark Brent crude is holding steady at over $60 a barrel, Marcel Thieliant of Capital Economics said in a commentary Tuesday.
Japan's imports of oil, gas and coal fell 33 percent in May from a year earlier.
With the Japanese yen expected to weaken further against the dollar, costs for imports are likely to rise. The dollar was trading at about 123.4 yen on Wednesday after strengthening to about 125 yen earlier this month.
"We expect the yen to weaken further toward 130 against the dollar by the end of this year, and to 140 by the end of next. The upshot is that the trade deficit should start to creep higher in the second half of the year," Thieliant said.
Japan's exports of machinery, vehicles and electronic devices rose at a double-digit pace in May, with exports of cars to the United States jumping about 25 percent.
Overall, since Japan has reduced excess capacity as manufacturers moved factories overseas, weak export demand has a relatively limited impact on overall industrial output, Masayuki Kichikawa of Bank of America Merrill Lynch Global Research said in a report.
"We think it will continue to be important to monitor export volume and production data because if economic growth worsens not only in China but also globally, the downside risks would be un-ignorable," he said.
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