Trade patterns are changing as the Eurozone and Japan move into deficit

by Shaun Richards

Current economic developments are having all sorts of consequences and today we can start out journey with something our political establishment and in their eyes elite assured us would not happen only recently.

COAL MARKET: Asian benchmark Newcastle coal (FOB, 6,000kcal/kg) has traded at an **all-time high** of $442.5 per tone (that’s not a typo). Asian importers like Japan and Taiwan are rushing to buy high quality Australian coal in what’s already a super tight market | #CoalTwitter ( @JavierBlas )

Here was COP26 last November.

Coal is being consigned to history today at COP26, as countries, banks and organisations move away from the single biggest contributor to climate change.

A just transition to clean energy and the rapid phase-out of coal has been at the heart of the COP26 Presidency as part of its efforts to minimise temperature rises in line with the Paris Agreement. The breadth of commitments in Glasgow today at Energy Day signal the world is moving towards a renewable future.

Indeed the Japanese seem to have forgotten this bit.

This follows recent announcements from China, Japan and South Korea to end overseas coal financing which now means all significant public international financing for coal power has effectively ended.

Although at these prices I doubt coal producers need much financing as they must be rolling in cash. Indeed India look set to increase its demand for coal.

India ramping up power plants that rely on imported #coal with government mandating the reopening of closed power plants. 9500MW is still under outage – try and calculate how many coal tonnes are required to bring this capacity back  ( @eadatt )

Maybe it is not alone.

A South Korean utility issued two tenders TODAY seeking coal shipments ( @SStapczynski )

So far we have been looking at Pacific nations but Europe is in the game too according to the Financial Times.

Brussels has given the green light for the EU to burn more coal over the next decade as it tries to end the use of Russian gas and oil. Coal is the most carbon-intensive fuel but the European Commission said the EU would use 5 per cent more than previously expected over the next five to 10 years as the bloc tries to replace Russian energy imports.

How much?

Coal is expected to produce another 100 terawatt hours of power, around the electricity consumption of Belgium, annually over the next five to 10 years.

So in fact we are seeing quite a dash for coal often from the same people who were consigning it to history only a few short months ago. From a UK perspective it is frustrating as we have lots of it but have decided not to use it. But from an economics perspective it is changing things which were regarded as a given.

Japanese Trade

All those energy bills arrived in this mornings figures.

Imports totaled 8.915 trillion yen ($70 billion) in April, up from 6.953 trillion yen in April 2021, and the highest since comparable numbers began to be taken in 1979. ( Associated Press )

If we look into the detail we see that there are 2 categories of coal ( I am not sure what NES is) and they are both up by approximately 200% making coal imports some 714 billion Yen in April. So we have a major driver of the imports above and if we look at the overall fuel category it is up by 109% at 2.5 trillion Yen.

We have another implied view of inflation as food imports rise 22% to 815 billion Yen. But we have quite a change in the level of imports coming from energy on its own.

This has swamped even exporter Japan.

Japan’s exports grew to 8.076 trillion yen ($63 billion) last month, up 12.5% from the previous year, according to Ministry of Finance data released Thursday. ( AP)

Meaning that we see this.

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TOKYO (AP) — Japan recorded a trade deficit in April as its imports ballooned 28% due to soaring energy costs and the yen’s weakness against the dollar.

Japan’s trade deficit totaled 839 billion yen ($7 billion) in April, for the ninth straight monthly deficit. In contrast, the world’s third-largest economy had recorded a surplus of nearly 227 billion yen in April last year.

A clear case I think of what the Frenchman in the Matrix series of films would call cause and effect.

The Yen

We can for once perhaps see an example of economics 101 as a weaker trade position for Japan and as we now know a larger deficit has accompanied a lower value for the Japanese Yen. As ever life is more complex than that as the other factor is expected interest-rates as it is expected to remain at -0.1% whereas markets expect more than 2% for the US by the end of this year.

There are also cross currents as the new lower Yen ( 128 to the US Dollar as I type this) has an impact.

Although a cheap yen generally works to boost the value of Japanese exports, its drop to 20-year lows against the U.S. dollar is making imports more costly. ( AP)

It is all a bit of a tangled web as we see China also engaging in a spot of devaluation which may yet become a Pacific thing.

I am afraid that currencies are often complex and in this instance we have last night;s equity falls of the order of 4% which have led to demands for a Safe Haven Yen. Or more specifically increased fears that the Japanese may repatriate some of their large foreign investment portfolio.

Interestingly Bloomberg has raised the issue of the 1985 Plaza Accord.

If the euro sinks below 0.90 — down from about 1.05 currently — against the dollar, that could “start raising alarms,” according to Alan Ruskin, chief international strategist at Deutsche Bank AG. GAMA Asset Management’s Rajeev De Mello sees a yen collapse to 150 — a level last seen in the 1990s —  as the potential trigger. A disorderly rise in the dollar might be a game-changer, said Goldman Sachs Group Inc. strategist Zach Pandl.

Euro Area

We have different numbers but a sign of the same issues from the Euro area today.

Current account recorded €2 billion deficit in March 2022, down from €16 billion surplus in previous month. ( ECB)

This represents quite a change on past patterns.

Current account surplus amounted to €219 billion (1.8% of euro area GDP) in 12 months to March 2022, down from €294 billion (2.6%) one year earlier.

As you can see there is a clear trend with a declining surplus and now deficit and if we look at the trade in goods we see a change from a surplus of 27 billion Euros in March 2021 to a deficit of 4 billion this year. As you would expect exports to have improved I suspect the energy situation is worse than it looks.


We can look at these changes in various ways and the first is the link between trade balance and currencies as we have seen a weaker Euro and especially a weaker Yen. Who is winning? Well I did say life is complex.

Russia’s current account surplus is soaring. The average current account surplus every April from 2007 – 2021 is +$6.7 bn. In April 2022 it was +$37.6 bn! Putin’s war pushed up oil and gas prices, which is now giving him a massive windfall. ( @RobinBrooksIIF )

That would be a factor in the Rouble rallying to around 62 versus the US Dollar as opposed to around 80 when the war began.

The other winners will be the other energy producers such as the Gulf states, the US and Australia and Canada.


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