Japan's March Exports Grow at a Slower Rate as Trade Deficit Widens to Record

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Japan's export growth slowed in March, increasing concerns about weakening global demand due to higher interest rates and western banking sector jitters. The country's exports rose by 4.3% in March from a year earlier, recording a 25th straight month of increase. However, the pace of growth slowed down due to a drop in China-bound shipments of cars and steel. The situation was exacerbated by the higher cost of coal, crude, and oil products, which outpaced the growth of exports.

The yen's depreciation by 16.5% from the same period a year earlier led to an increase in the value of imports instead of driving up external shipments, as Japanese exporters have shifted production overseas during previous periods of yen strength. As a result, Japan's annual trade deficit reached a record 21.7 trillion yen ($161 billion), surpassing the previous record of 13.7 trillion yen in fiscal 2013.

According to Takeshi Minami, chief economist at Norinchukin Research Institute, Japan's trade deficit will persist as exports weaken. He also noted that Chinese consumption lacks strength even after zero-COVID curbs were lifted. Effects of the fully-fledged monetary tightening in the West since last summer will play out in their economies, causing Japan's exports to turn downward going forward.

Imports rose 7.3% in the year to March, below the median estimate of an 11.4% increase and after the prior month's 8.3% gain. The trade balance in March came to a deficit of 754.5 billion yen versus the median estimate for a deficit of 1.29 trillion yen in March, after a shortfall of 897 billion yen in February. Exports to China, Japan's largest trading partner, fell 7.7% year-on-year in March, a fourth straight month of declines.

The situation is attributed to a months-long global monetary policy tightening streak aimed at curbing red-hot inflation, which has raised concerns about a worldwide recession. Additionally, the recent failure of two mid-sized U.S. banks as well as troubles at Credit Suisse has raised worries about a credit crunch.

Overall, the data shows that Japan's trade deficit will likely persist due to a slowdown in global demand and an increase in import costs.

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