Macro Monday Japan: Trade Balance, Imports

Please refer to page 25 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. JAPAN Inside Our Japan macro outlook 2 The Yen 5 The OECD LI, PMIs 6 GDP 7 Consumption 8 Residential investment 9 Employment & wages 10 Exports & Imports 11 Industrial production 12 Private investment 13 Public investment 15 Tax revenue 16 Credit growth 17 Commercial property 18 Inflation 19 BOJ Tankan Survey 22 MOF corporate survey 23 Japan in a snapshot 24 Date Indicator Month November 21 Trade Balance Oct All Industry Activity Index Sep 24 Indexes of Business Conditions Sep 25 Consumer Price Index (Tokyo, Nov) Oct Services Producer Price Index Oct 28 Industrial Production Oct New Housing Starts Oct 29 Household Survey Oct Unemployment Rate Oct Effective-Job-Offers-to-Job-Seekers Ratio Oct Retail Sales Oct Input-Output Price Index of MFG Oct 12/1 MOF Corporate Survey Q3 12/2 Monetary Base Nov Source: Bloomberg, BOJ, Cabinet Office, METI, MLIT, November 2016 Analyst(s) Nara Song +81 3 3512 7878 nara.song@macquarie.com Peter Eadon-Clarke +81 3 3512 7850 peter.eadon-clarke@macquarie.com 21 November 2016 Macquarie Capital Securities (Japan) Limited Macro Monday Japan Trade Balance, Imports Key data release: Trade Balance, October (Monday) One of the major contributors to Japan’s 3Q real GDP growth (YoY 0.9%, QoQ saar 2.2%) was the decline in imports (YoY -3.1%. QoQ saar -2.4%). The monthly trade balance statistics provide the first look at October data for goods imports. The monthly balance of payments statistics contain the services trade balance. As shown below, the principal YoY volume weakness in imports over July to September by item was raw materials. The lower table has imports by country of origin. Imports from China over July to September were weak. Japanese goods imports by items (quantum index, 2010=100) Total Food stuff Raw Materials Mineral Fuels Articles of apparel Chemicals Metals Machinery & Equipment Miscella-neous 2014 106.0 100.3 101.1 103.2 101.9 116.4 105.5 112.4 102.9 2015 103.0 99.6 98.5 101.5 96.7 115.9 101.4 106.7 96.1 2016 1H 100.7 98.8 101.6 98.9 86.6 119.4 99.5 102.5 95.3 2016 July 101.4 103.3 99.4 96.7 92.2 120.8 96.0 103.1 95.2 YoY -4.0 -1.1 -1.2 -7.6 0.0 0.4 -7.1 -6.0 -2.9 2016 Aug 103.9 100.9 97.5 103.2 126.3 126.0 102.4 99.7 96.3 YoY 3.8 5.7 1.5 1.6 10.8 11.6 7.9 1.2 5.1 2016 Sept 104.9 98.2 101.4 94.0 133.8 119.4 101.8 109.5 97.9 YoY -1.5 -0.4 3.0 -7.0 -3.7 -2.1 3.2 0.0 -1.8 Source: MOF, Macquarie Research, November 2016 Japanese goods imports by region (quantum index, 2010=100) World USA EU Asia ASEAN China 2014 106.0 103.7 123.0 103.8 101.4 103.7 2015 103.0 102.6 117.0 99.3 104.7 95.1 2016 1H 100.7 98.8 115.7 96.4 105.3 91.0 07/2016 101.4 101.7 117.5 96.0 101.9 90.6 YoY, 07/16 -4.0 -4.2 -6.7 -5.4 -8.0 -5.8 08/2016 103.9 106.7 122.2 98.9 109.8 91.3 YoY, 08/16 3.8 0.0 2.4 5.9 12.9 0.9 09/2016 104.9 98.1 120.0 105.2 106.7 103.6 YoY, 09/16 -1.5 0.2 0.3 -0.9 0.3 -3.7 Source: MOF, Macquarie Research, November 2016 Domestic demand growth to 3Q 2016 was anaemic (YoY 0.3%, QoQ saar 0.1%). To be consistent with this, import growth should not be shrinking at 2.0–3.0%. We want to see the YoY import growth rate recover in the October release. New US$/¥ forecasts were released in the 15 November 2016 The Global Macro Outlook: 25bp from the US Fed in December. A widening of 10-year bond spreads (the US versus Japan) enables an easier recycling of Japan’s current account surplus. The spread has widened by around 30bp over the last two weeks, and our year-end forecasts for the yen have become moderately weaker: 2016 105 (unchanged), 2017 104 (101) and 2018 103 (97). Macquarie Research Macro Monday Japan 21 November 2016 2 Our Japan macro outlook Our real GDP growth forecasts remain anaemic, with modest contributions expected from consumption and net exports. Fig 1 Japan: key macroeconomic forecasts CY11 CY12 CY13 CY14 CY15 CY16E CY17E CY18E CY19E GDP (YoY, %) -0.5 1.7 1.6 -0.1 0.6 0.4 0.6 0.7 0.8 CPI (YoY, %) -0.3 0.0 0.4 2.7 0.8 -0.1 0.3 0.5 0.9 (**) Overnight call rate (*) 0.1 0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.0 10-year JGB (*) 0.99 0.79 0.74 0.3 0.3 -0.1 -0.1 0.2 0.3 ¥/$ (*) 77.6 86.3 105.4 119.8 120.4 105 104 103 102 Note: CPI is the headline CPI ex fresh foods. (*) per period-end, Macquarie forecasts. (**) the consumption tax rate increase to 10% from 8% is now scheduled for October 2019. Source: Bloomberg, Macquarie Research, November 2016 The impact of financial repression on savings is leading households to be subdued consumers. For more, please see the 5 October 2016 PEC’s Japan strategy: Accentuated sector rotation. One developing positive is the return to export growth to the US and the EU, Fig 2. Fig 2 Japan exports to US and EU Source: BOJ, Macquarie Research, November 2016 Whilst we have been forecasting a trend appreciation in the yen, the move has been much stronger than expected. The yen has been very lo