What’s causing the widening in the trade deficit?

Japan’s trade deficit has reached a record high in recent months. This is often attributed to a surge in energy imports after the shutdown of the country’s nuclear reactors. However, energy import volumes are no higher than they were before the Great East Japan Earthquake. The widening of the deficit can instead largely be explained by the relative strength of Japanese domestic demand at a time of sluggish global growth. With the world economy now picking up and fiscal policy at home set to tighten, the deficit should eventually narrow again, but it will probably remain deeply in the red.