Japan’s January Trade Balance: What You See Depends On Where You Stand

Below is an example of how statistics can be used to confuse or mislead the audience/reader.

Japan’s January external trade conditions, according to Nikkei Asia:

Japan's trade deficit shrank 57.9 percent in January from a year before to 1,177.5 billion yen ($9.91 billion), as exports to the United States and China jumped while imports slid with crude oil prices diving worldwide, government data showed Thursday.

The report is accurate when compared to the previous January data. But that’s because the January 2014 data looked like a statistical outlier (see red rectangle) where the deficits swelled more than the seeming normal distribution rate.

On the other hand, Japan’s January trade deficit has been at the worst level since April 2014 as shown by the chart from Investing.com. 

The deficit has also been bigger on a month on month basis.

Next the basis of trade balance…

Exports

The value of exports surged 17.0 percent to 6,144.7 billion yen, up for the fifth straight month, as those of automobiles and semiconductor components grew, the Finance Ministry said in a preliminary report.

The year on year figures represents a fact. (chart from investing.com)

But again that would be just part of the story.

In nominal terms, exports collapsed in January of last year (2014) as shown by the red ovals in the chart from Tradingeconomics.com. 

Said differently, the January 2015 basis of comparison emanates from last year's very low level of exports.

And the January 2014 export data has signified the statistical fat tail that led to outsized trade deficits of the same period, which has been the basis of comparison for January 2015. Media makes no mention of this.

So when compared to 2014's low level, current export growth would naturally project G-R-O-W-T-H.

Yet in nominal terms, January exports have only been at July 2014 levels (green horizontal line). Hardly any meaningful improvement. 

On a month on month basis, exports even slumped—down by 10.9%!

What you see depends on where you stand.

More…

Imports

Imports dropped 9.0 percent to 7,322.2 billion yen after an upturn in the previous month, with those of fossil fuels for thermal power generation -- which has made up for the absence of nuclear power following the 2011 Fukushima nuclear crisis -- falling, the ministry said.

That’s the year on year change of Japan’s imports as reported by media…(chart from investing.com)

But this can’t be seen as an accurate representation of Japan’s trade conditions.

That's because the story radically changes when seen from the nominal levels where import trend appears headed upwards with intermittent monthly volatility. (chart from tradingeconomics.com)

Despite crumbling in oil prices in the last quarter of 2014, Japan’s imports seem to have been trending higher. Over the short term, imports have been up since May 2014. Over the longer term, import trend has been on the rise since July 2013

Although month month has shown a modest 3.1% decline.

Again everything depends on the basis of comparison.

The bottom line: What media tries to spin as “positive” also have negative aspects when seen from different angles. Nonetheless the focus on a single set of statistics ensures that the audience remain blind to the alternatives.

For the unaware, spins like this help abet reckless asset pump and push. So the Nikkei now trades at fresh 8 year highs (foreign buying 113.9 billion yen as of February 7), even as JGBs remain skittish amidst foreign buying (435.2 billion yen as of February).