Japan sees $1.8bn trade deficit in May but IMF says reforms working

Japan had an unexpected trade deficit of $1.8bn in May, despite a 14.9% rise in exports, according to new data.

However the country’s economic recovery has been praised in a report released today (June 19) by the International Monetary Fund (IMF) – though it has urged more reforms.

The trade figures just released show imports rose 17.8%, more than 2% above estimate – the highest rise in three years, while the 14.9% rise in exports was partly due to last year’s figures being weak following the Kumamoto earthquake.

Japan's prime minister Shinzo Abe is transforming the economy Photo: U.S. Department of State, via Wikimedia Commons

The figures coincided with the publication of the IMF report on Japan, which praised the economic reform programme of prime minister Shinzo Abe, dubbed ‘Abenomics’, although it said much still needed to be done in terms of reform.

Abenomics, started in 2012, saw Abe tackle the longstanding stagnation of the Japanese economy – which has an ageing population – by stimulating growth by making it easier to borrow and increasing government spending.

He also started a major reform of cultural and workplace issues, such as encouraging women to return to work after starting a family, and making it easier for companies to sack underperforming staff.

“Abenomics has proven successful in easing financial conditions, increasing corporate profits, and boosting employment and female labor force participation,” said the report.

“Revised national accounts data indicate more robust GDP growth during 2013-15 than originally estimated, based largely on stronger private investment and consumption.”

The IMF said Japanese economic performance was the strongest in several years, with the economy exceeding its potential for the past five consecutive quarters.

Consumer growth

Consumer growth turned positive in 2016 and private investment strengthened. Unemployment has fallen to record levels, the job offer-to-applicants ratio is at an all-time high, and there has been a steady increase consumer confidence.

But the IMF said the country must persevere with its reform programme to secure sustained growth and raise inflation to its 2% target.

“The current momentum in the Japanese economy provides an opportunity to push forward with reforms that will enhance growth and inflation prospects and mitigate medium-term risks,” the report stated.

Reform package

The IMF said key elements of the reform package should include:

• Labour market reforms to increase productivity and boost wages.
• Measures to increase private investment, including efforts to ensure credit is available to small and medium-size firms to enhance investment and growth prospects.
• Measures to diversify and enhance labour supply, with further support for female and older workers and increased use of foreign labour.
• Monetary policy should maintain a sustained accommodative stance, and provide additional easing if downside risks materialise.

“This policy package needs to be implemented in a decisive and well-coordinated manner. We see this as the best way to make substantive progress toward the government’s objectives,” said IMF first deputy managing director David Lipton.