Japan Posts Second Biggest Trade Deficit In History

For those who may not have noticed it, the headline says "deficit" and pertains to Japan: once upon a time a booming export economy. The reason: the ongoing collapse in export trade, after May exports dropped by 10.3% from a year ago, and just better than April severe economic contraction of 12.4%. Consensus was for an 8.4% decline. The net result was a monthly deficit of 853.7 billion yen, or $10.7 billion, the second biggest inverse surplus ever. And just like in Europe, where things are going to go from insolvent to perfectly solvent any minute now... just not yet... so in Japan the economic renaissance which will cause the economy to surge (unclear how: no new monetary stimulus, and the recently announced fiscal stimulus of Y500 billion in new loans will do precisely nothing to boost anything except for some corrupt bureaucrats Swiss bank accounts) is coming any minute.... just not yet. Bloomberg says: "Shortages of power and parts have disrupted production and slowed overseas sales, prompting Japanese companies including Honda Motor Co. to forecast weaker earnings. Higher unemployment in the U.S. and weakening demand in Asia indicate Japan won’t be able to rely on global demand to pull itself out of a slump caused by the quake." And the understatement of the weekend comes from BNP economist Azusa Kato: "The state of the global economy is a little worrying. Both the U.S. and Europe aren’t doing that great and emerging economies are also tightening at an incredible pace, increasing uncertainty." Surely this enough is enough to explain why futures are up, since the Fed has no option but to do QE3. Alas, as the dumber by the minute algos continue to not realize, the market has to plunge from here (just like what crude has been doing for the past 2 weeks), before the Fed gets the greenlight to engage in Operation Twist 2.

More from Bloomberg:

Recent data suggest the economy’s contraction has extended into this quarter. Machinery orders fell 3.3 percent in April, the first decline in four months, a sign companies are reluctant to spend after the March disaster. The unemployment rate climbed and households cut spending in April.

Honda Motor, Japan’s third-largest carmaker, last week forecast a bigger-than-estimated 63 percent decline in full-year profit, citing production disruptions on parts shortages and the strong yen.

Hitachi Ltd., a Japanese electronics and power-equipment maker, projected that net income will drop 16 percent in the year ending March 31 after the disaster crippled its factories.

“Given a slowdown in the overseas economy, it’s difficult to expect a long-term economic expansion, although a recovery in production is becoming clear,” Junko Nishioka, chief economist at RBS Securities in Tokyo, said before the report. “A V-shaped recovery scenario for later this year is looking fragile.”

There is some good news: the ongoing collapse in exports to the US, means less imports by the US, means an artificially smaller trade deficit, means higher GDP. Alas, only in the land of economic bean counting is one nation's undisputed collapse the reason for another's growth.

Shipments to the U.S. fell 14.6 percent in May from a year earlier, compared with a 23.3 percent drop in April, the report showed. Sales to Europe decreased 8.8 percent.

Exports to China, Japan’s largest market, fell 8.1 percent, compared with a 6.8 percent drop in April. Shipments to Asia, where countries from South Korea to the India have raised borrowing costs to quell inflation, slid 8.7 percent.

An increase in energy prices pushed up import bills. Crude oil prices have gained about 20 percent in the past year and Japan gets virtually all of its oil from abroad. Imports rose 12.3 percent in May from a year earlier, today’s report showed.

“Japan’s trade deficit could remain intact for a prolonged period,” Kyohei Morita, chief economist at Barclays Capital in Tokyo, said before the report. Still, “the driver is likely to change from decreasing exports to increasing imports,” which isn’t bad as it reflects domestic demand for reconstruction.

As we have claimed since early May, the only possibility for Japan to regain control of its economy is through another massive quantitative easing episode, which however will shift the scales in the USD-JPY carry currency race well to the benefit of the ridiculously strong Yen, something that the banking clergy, whose sole purpose in life is to extinguish the greenback, may not appreciate too much.