Trade deficit growths by wide margin as exports slow down

folarin okunola

August 20, 2015 10:51 AM

China's recent move to devalue the yuan, which makes its own products more price competitive in overseas markets, has further worsened unease over the trade outlook.

Japan's trade deficit increased to its largest level in five months in July this year, adding to the country’s worries over its poor economy amid weakening demand in China for chemicals, machinery and electronics.

Despite the fact that exports rose 7.6 percent from a year earlier, imports fell just 3.2 percent, less than forecast. The 268.1 billion yen ($2.2 billion) deficit resulting form that reported Wednesday paled in comparison with a deficit of 70.5 billion yen ($566 million) in June and was the biggest since February.

READ: Japan rises on stimulus hope after after Yuan stabilizes

The Asian country’s economy contracted at a 1.6 percent annual pace in April-June after a 4.5 percent expansion in the first quarter of the year, piped down mainly by consumer spending that was weaker than expected, though exports also were a drag on growth, falling at a 16.5 percent annual pace.

"The trade deficit widened in July, and should continue to rise in coming months as the weaker yen pushes up import costs," Capital Economics researcher, Marcel Thieliant , said in a note.

Lower costs for imports of oil and gas thanks to the drop in crude oil prices have reduced the country’s trade deficit in recent months. Therefore the deficit in July was 72 percent lower than in the same month a year earlier.

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