Japan posted a USD 2.34 billion trade deficit in May, its first in four months, driven by a 57% drop in crude oil imports due to the Middle East conflict. Meanwhile, the Bank of Japan raised its policy rate to 1%, the highest since 1995.
Japan witnessed a trade deficit of around USD 2.34 billion (378.6 billion yen) in May, which is its first deficit in four months, according to the government data released on Wednesday. The deficit in May was 42.8 per cent lower compared with the same month last year.
As per the report, Japan's crude oil imports fell sharply, dropping more than 57 per cent in volume amid the ongoing Middle East conflict. Meanwhile, exports rose 17.0 per cent to 9.51 trillion yen on robust demand for semiconductor and other electronic parts as well as motor vehicles. On the other hand, imports surged 12.5 per cent from a year earlier to 9.89 trillion yen, on purchases of communication devices, the Finance Ministry said in the report.
Trade Figures in Detail
Due to the Middle East conflict that disrupted transportation through the Strait of Hormuz, Japan's imports of oil dived 57.3 per cent to 4.73 million kiloliters, the data showed. Japan has increased its efforts to procure fuel from alternative sources, including the United States, since the U.S.-Israeli attacks on Iran that began on Feb. 28 led to the effective closure of the vital shipping lane. Crude oil imports from the United States increased 24.0 per cent to 576,000 kiloliters.
Bank of Japan Hikes Interest Rate
Earlier this week, Bank of Japan (BOJ) raised its short-term policy rate to 1 per cent from 0.75 per cent, which is the highest since 1995. Policy Board approved the move by a 7-1 majority vote. The new guideline for money market operations will take effect from Wednesday.
The interest rate applied to the complementary deposit facility, paid on current account balances held by financial institutions excluding required reserves, was increased to 1.0 per cent. On the other hand, the basic loan rate under the complementary lending facility was kept at 1.25 per cent. Additionally, the basic discount rate was kept at 1.25 per cent, while bill discounting remains suspended.
Economic Assessment
According to the Bank of Japan (BOJ), the rate decision reflects its assessment that Japan's economy has continued to recover moderately, despite some weakness caused by the situation in the Middle East. The central bank noted that higher crude oil prices are putting pressure on economic activity.
However, growth continues to be supported by strong corporate profits, along with improving employment and income conditions. The BOJ also said the risk of a sharp economic slowdown has eased, helped by government measures to reduce household energy costs and progress in securing alternative sources of raw materials. (ANI)
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