In December, Japan exports rose 11.5% yoy to JPY 8787B, marking the slowest growth rate in 2022. Exports to China fell -6.2% yoy in value and down -24% yoy in volume. Imports rose 20.6% yoy to JPY 10236B, led by oil, coal and liquefied natural gas.

Trade deficit came to JPY -1.45T, extending the run of deficits to 17 months. For the whole of 2022, trade balance came in at JPY -19.97T deficit, the second straight annual shortfall, and the largest since 1979.

In seasonally adjusted term, exports dropped -3.5% mom to JPY 8352B. Imports dropped -3.4% mom to JPY 10076B. Trade deficit narrowed slightly to JPY -1.72T, larger than expectation of JPY -1.63T.

Japan’s PMI Services was finalized at 51.5 in December, up slightly from November’s 50.8, signaling a modest but positive growth in the sector. Composite PMI also improved, reaching the neutral mark at 50.0, up from 49.6 in the previous month.

Usamah Bhatti of S&P Global Market Intelligence attributed this growth to an increase in new orders and customer numbers. This uptick in business activity led firms to end the year with a more positive outlook. Service providers also expressed confidence about future activity, driven by expectations of economic recovery and plans for long-term business expansion.

However, Bhatti noted “steeper increase in inflationary pressures”, mainly from escalated costs for raw materials, fuel, and labor. This resulted in the highest increase in service output charges since August.

Full Japan PMI Services final release here.

Japan’s core private-sector machinery orders fell notably by -4.9% mom in November, significantly below expectation of -0.8% mom. This decline marks the first downturn in three months and points to a potential slowdown in business investment. On a year-on-year basis, core machinery orders decreased -4.0% yoy, falling short of the anticipated 0.2% yoy increase.

The Japanese government has maintained its assessment that machinery orders have “stalled” for 13 consecutive months. This continued stagnation in machinery orders is particularly concerning as they are often regarded as a leading indicator of capital spending over the next six to nine months. The implication is that businesses might be exercising caution in their investment decisions, possibly due to uncertainty in the economic outlook or other external factors impacting their spending plans.

Breaking down the orders by sector, manufacturing industry saw substantial reduction in orders, with -7.8% mom drop. Service sector also recorded a slip in orders, down -0.4% mom.

Full Japan machine order release here.