Japan July exports expected to jump on weak yen

TOKYO (Reuters) – Japan’s exports are forecast to have grown in July at the fastest pace in almost three years, according to a Reuters poll, suggesting the benefits of a weak yen are finally starting to take hold.

However, the trade balance is forecast to be in deficit for the 13th consecutive month in July, as the weak yen makes Japan surging energy imports even more expensive.

An improvement in exports would help offset some disappointment over data released last week which showed economic growth slowed in the second quarter, and raised questions over how well Prime Minister Shinzo Abe’s reflationary policies were working.

“One concern is that oil prices are rising again, which will push up energy imports,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Still, I expect a recovery in both the value and volume of exports to take hold. I think the trade deficit will improve.”

Exports in the year to July rose a median 13.1 percent from a year ago, which would be the fastest increase since September 2010. The finance ministry will release the data on Monday.

Economists will also closely scrutinize Japan’s exports to the United States to see if improvements in the world’s largest economy continue to help demand for Japanese goods.

Japan’s exports to China could also provide clues as to the extent of a recent economic slowdown in the world’s second largest economy. China is Japan’s largest trading partner, though the United States was the biggest buyer of Japanese exports in the first half of this year.

Japan’s total imports were forecast to have risen 15.4 percent in July from a year ago, according to the Reuters poll. That would be the fastest gain since October 2011 as Japan imports more fossil fuels to offset its decreased reliance on nuclear energy after the Fukushima disaster two years ago.

The poll forecast the trade deficit to have widened to 785.6 billion yen in July.

The yen has weakened around 20 percent versus the dollar since November due to expectations that the Bank of Japan would aggressively ease monetary policy, which it did in April.

The yen’s retreat has helped exports to a certain extent, but it has also inflated the cost of energy imports, which are rising because Japan is importing more fuel.

(Editing by Simon Cameron-Moore)