Japan trade balance shrinks more than expected in July on sluggish exports

Investing.com-- Japan’s trade balance shrank more than expected in July as persistent disruptions in manufacturing output spurred slower-than-expected growth in exports, while improving local demand also saw imports surge. 

Trade balance fell to a deficit of 621.8 billion yen ($4.2 billion) government data showed on Wednesday. The reading was weaker than expectations for a deficit of 330.7 billion yen, and reversed course from the 224 billion yen surplus logged in June.

Exports grew 10.3% year-on-year in July, missing expectations for growth of 11.4%. But they still accelerated sharply from the 5.4% growth seen in the prior month. 

Japanese exports have lagged in recent months as the automobile sector, which accounts for a bulk of the country’s exports, was hit with a series of safety scandals, which caused production disruptions at several major carmakers. 

But the country’s bigger-than-expected trade deficit was also spurred by an outsized increase in imports, as local consumption improved on rising wages.

Imports grew 16.6% y-o-y in July, beating expectations for a rise of 14.9% and accelerating sharply from the 3.2% seen in the prior month.

The share increase in imports followed recent indicators that Japanese private consumption was picking up, as the effects of bumper wage hikes seen earlier this year began to be felt around the country.