(Bloomberg) -- Japan’s exports grew for a seventh consecutive month in June, supporting the view that in the second quarter the economy will recover from its contraction at the start of the year.
Exports gained 5.4% from a year ago, led by chip-making gear and non-ferrous metals, the Finance Ministry reported Thursday. The result missed economists’ consensus estimate of a 7.2% increase.
Imports rose 3.2%, compared with a 9.6% gain estimated by analysts. With a smaller-than-expected rise in imports, the trade balance turned to a surplus of ¥224 billion ($1.4 billion) from a deficit of ¥1.22 trillion in May.
While the trade surplus likely helped Japan return to growth last quarter, economists sound a note of caution over the differing strength of internal and external demand. The Bank of Japan is mulling the strength of the economy as it heads for its latest monetary policy decision at the end of the month, where it will announce cuts to bond purchases. Around a third of polled economists expect the BOJ to raise interest rates again.
“I see a rebound in second quarter GDP from the first quarter, but it will not be robust growth,” said Yutaro Suzuki, an economist at Daiwa Securities. “Weak imports indicate weak domestic demand and thus weak consumption. Without confirmation that consumption is recovering, it will be difficult for the BOJ to move.”
The value of the export shipments was boosted by a weak yen, which the finance ministry said traded at an average of 156.64 against the dollar in June, 12.5% weaker than a year ago.
By region, Japan’s shipments to the US gained 11%, halving from the previous month’s growth rate. The increase in exports to China also slowed to 7.2% from 17.8%, and exports to the EU dropped 13.4%. China’s growth unexpectedly slowed to the weakest pace in five quarters in the three months ended June, putting pressure on policymakers to step up support.
The weak yen helps boost Japanese exporters’ overseas earnings, but its effects on the overall economy is a mixed bag. The softer currency simultaneously fuels concerns over inflation in energy, food and materials for the resource-scant nation.
The Japanese economy needs strong exports to stage a rebound in the quarter through June, especially as consumer spending remains fragile with persistent inflation weighing on households. The economy shrank in the first quarter with both consumers and companies cutting back on spending.
Policymakers are watching the impact of the weak yen on the economy and prices ahead of the BOJ’s next policy decision. Authorities have stepped into the foreign exchange market multiple times this year to shore up the yen, with last week’s moves being seen as the latest example of a two-punch intervention effort.
The Japanese currency was trading around 155.60 to the greenback on Thursday morning, around three yen stronger than the morning before.
(Updates with more details from the report, economist comments)
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