The trade deficit deteriorated further in August (-JPY445bn after -232bn in July). Nominal exports increased moderately by +6.6% y/y in August after +3.9% in July. Demand from China (+12.1% y/y) was strong but was moderate from the US (+5.3% y/y). Imports growth was strong (+15.4% y/y) reflecting higher cost of energy. Looking ahead, the economy is faced with rising risks. The trade outlook is hindered by rising protectionist measures from the US and elevated energy costs. Domestically, lower industrial activity over the two past months and weaker corporate confidence call for slower momentum in the near term. In that context, we expect monetary policy to remain accommodative with a policy rate at -0.1% at least until 2020. The fiscal policy will likely remain neutral as PM Abe calls for the implementation of the sales tax after his re-election as the leader of the LDP.