JAPAN DATA: Imports Surge, Weighing On Trade Position, Surplus With US Falls

Japan's January trade figures were mixed. Exports rose 7.2% y/y, close to the 7.7% forecast and up from the prior 2.8% pace. Imports surged though to 16.7%y/y, from 1.7% in Dec and against a 9.3% forecast. Not surprisingly, this drove weaker than forecast trade balance outcomes. The headline deficit was -¥2758.8bn, versus a ¥132.5bn surplus prior. In seasonally adjusted terms, the deficit was -¥856.6bn, versus -¥221.0bn prior. 

• Exports were still down -2.0% in m/m terms. The y/y rise in exports puts Japan a little out of line with other NEA export orientated economies. These economies saw slower y/y momentum for Jan. Exports to China fell 6.2%y/y, and down 15.1% to the EU, but rose to the US 8.1%. The trade surplus with the US was down from Dec's level, falling by more than half.  
• In volume terms exports were down 1.7% y/y, compared to Dec's pace of -2.6%.
• Import volumes were much stronger up 8.7% y/y. This is the strongest pace since 2021 in y/y terms. Import volumes were positive in y/y terms from all key regions, including the US (+2.4%), which could be an ongoing focus point as countries look to avoid tariff penalties from the US (by purchasing more from the US).
• It may also signal a firmer domestic demand backdrop. The chart below overlays import volumes y/y versus y/y real GDP growth. Import trends tend to volatile though (the white line on the chart)
• The weaker trade deficit position unwinds a modestly improving trend we saw through Q4 last year.  

Fig 1: Japan Import Volumes & GDP Y/Y