Affected by the economy and policies, the yen has continued to depreciate, and the U.S. dollar has recently risen to around 137 against the yen, a new high since 2000. At present, the yen has depreciated sharply, but Japan's trade deficit is expanding. After analysis, we believe

Affected by the economy and policies, the yen has continued to depreciate. The U.S. dollar has recently risen to around 137 against the yen, a new high since 2000. At present, the yen has depreciated sharply, but Japan's trade deficit is expanding. After analysis, we believe that it is mainly due to: The import amount is driven by the increase in commodity prices and rising demand. Due to the trade structure, the overall price increase of exports is not as high as the exchange rate depreciation. .

Overview of the trade situation between the yen and Japan

Starting from January 2021, due to the decline in the fatality rate of new crown , the United States gradually chose to coexist with the epidemic, the economy gradually began to recover, and policies were also tightened and gradually implemented, while Japan The economic situation is still the normal development of policies, and the gap with the United States is gradually widening. The exchange rate of the US dollar against the Japanese yen continues to rise, and the Japanese yen depreciates sharply. The US dollar against the Japanese yen rises from 103 to 137, and the depreciation rate reaches as much as 33%. Theoretically speaking, the depreciation of a country's exchange rate will be beneficial to the country's exports, thereby improving the country's economic situation. Export earnings can also alleviate the pressure of the country's exchange rate depreciation. However, when we observe Japan’s trade balance data so far in 2021, the deficit has gradually expanded. As of May, Japan’s trade balance exceeded 2 trillion yen. Specifically, the expansion of the trade balance is mainly due to the sluggish exports and rising imports. So in the case of the depreciation of the yen, why imports are so strong but exports have fallen? Let’s analyze imports and exports separately below.

Figure: The depreciation of the yen has led to Japan's trade deficit expanding (left: million yen)

Source: Wind Nanhua Research

Figure: The expansion of the trade balance is due to the expansion of imports, while exports are relatively sluggish (millions of yen)

Source : Wind Nanhua Research

In terms of imports

Judging from the contribution of major commodities to Japan's trade balance, the main contribution of imports is fossil fuels, and the main contribution of exports is transportation equipment. The depreciation of the Japanese yen exchange rate has not inhibited the rise in imports, mainly due to the trade deficit of fossil fuels, the main contributor to imports. Since fossil fuels are the main import force, the prices of crude oil and other bulk commodities have increased across the board due to geopolitical influences. At the same time, the overall net import of crude oil has shown a clear upward trend. The overall main import force has not been inhibited by the depreciation of the yen, causing the import amount to rise. Trends are inevitable.

Figure: Comparison of Japan’s import and export contribution of major commodities (thousands of dollars)

Source: Wind Nanhua Research

Figure: Crude oil import demand is still expanding (thousand barrels/day)

Source: Wind Nanhua Research

export aspect

exchange rate for An important factor that affects exports is that the appreciation or depreciation of the exchange rate will affect the pricing or competitiveness of export products, thereby affecting the export amount. At present, Japan's exports are mainly heavy industry and high-tech, and these high-tech industries tend to have high price stickiness and low price elasticity. From a trend perspective, with the depreciation of the yen, the export price index is also gradually rising. When we compare the changes in the price index of various export commodities in May 2022 compared with January 2021, the total export price index increased by 27.31%. Less than the 33% currency depreciation. Specifically, raw materials, chemical products and others provide positive feedback, with the price index rising higher than total exports, while the price increase of machinery, equipment and products is smaller than that of total exports.

Chart: Japan’s export unit price index of various commodities

Source: Wind Nanhua Research

Chart: Changes in the export price index of major commodities compared with January 2021

Source: Wind Nanhua Research

In addition, Japan exports transportation equipment As the main force and the main contributor to the trade surplus, more than 60% of transportation equipment are cars. The decline in automobile exports directly limits the recovery of Japan's export trade. The reasons for the decline in Japanese automobile exports are: first, due to the insufficient supply of automobile parts (mainly in Southeast Asia), the year-on-year growth rate of Japanese automobile production has declined; second, the promotion of new energy vehicles has caused China and the United States to gradually occupy Japanese automobiles in automobile exports Market, in the first five months of 2022, China exported 1.08 million cars and Japan exported 1.27 million cars. In 2021, China and Japan exported 3.82 million cars and 2.01 million cars respectively. The gap between the two is gradually increasing. Third, external demand has declined overall. Due to rising global inflation, the gradual tightening of policies will undoubtedly inhibit the recovery of demand.

Figure: Automobile production is on a downward trend due to insufficient supply of spare parts

Source: Wind Nanhua Research

Figure: Changes in Japan’s major export commodity data (thousands of dollars)

Source: Wind Nanhua Research

picture: Japan, April 2022 Main export commodity data (thousands of dollars)

Source: Wind Nanhua Research

Summary

The main import force was not suppressed by the depreciation of the yen, and the overall demand and the prices of the main imported products rose; the main export force was weak, and the overall increase in export prices was less than the currency depreciation. Imports and exports have gone their separate ways as a whole, causing trade to be largely unaffected by the exchange rate despite the depreciation of the yen, resulting in an expanding deficit. Therefore, it is difficult to establish the logic of depreciating the exchange rate and thus affecting exports to boost the Japanese economy.

Author: Wang Ying, Nanhua Futures Research Institute Z0016367

Important statement: The contents and views of this report are for reference only and do not constitute any investment advice. There are risks in the futures market, so be cautious when entering the market.