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Japan’s Export Growth Slows as External Demand Moderates

(Ministry of Finance)

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Japan’s export growth slowed, with shipments to the US slipping for the first time in almost three years in an outcome underscoring the mixed prospects for Japan’s economic recovery. 

Exports increased 5.6% in August from a year ago, decelerating from 10.2% in the previous month, the Ministry of Finance reported Wednesday. The result, which missed the 10.6% consensus estimate from economists, was driven by a 9.9% decline in auto exports, with shipments of construction and mining machinery also sinking.

Imports climbed 2.3%, falling short of the 15% gain forecast by economists. The trade deficit widened to ¥695.3 billion ($4.9 billion).

The weaker-than-expected data may give officials at the Bank of Japan another reason to hold policy steady when the board gathers this week. Economists responding to a Bloomberg survey were unanimous in forecasting a hold for Friday’s decision, with many expecting a rate increase in the fourth quarter.

The figures partly reflected the effects of a typhoon that prompted companies including Toyota Motor Corp. to suspend output at some factories, according to Kazuma Kishikawa, economist at Daiwa Institute of Research.

“Exports were disappointing this month but that was due to some special factors,” Kishikawa said. “It’s difficult to conclude that the overall trend of exports is losing momentum.”

The data were at odds with the BOJ’s assessment in July. In the outlook report released after the board meeting that month, the bank said, “exports and production are likely to return to an uptrend, mainly due to a pick-up in global demand for IT-related goods, as overseas economies continue to grow moderately.”

“While Wednesday’s results were considerably weaker than the views expressed in the BOJ’s latest outlook report, over the longer term, I am of the same opinion with the bank that exports will pick up amid solid growth in overseas economies,” Kishikawa said.

The data were also inconsistent with wider trends for trade. The World Trade Organization said earlier this month that its goods barometer, a gauge for global trade activity, rose to 103 compared with a reading of 100.6 in March, with components of the barometer such as autos, shipping containers and air freight showing at or above-trend levels.

The weak result for auto shipments was exaggerated by comparisons with a year earlier, when exports of autos surged more than 40%. 

Among products supporting Japan’s export performance last month were semiconductor manufacturing equipment, which posted a 55.2% gain. Japan’s tech sector has benefited from a wave of global demand for artificial intelligence development, which has generated high demand for advanced semiconductors and related machinery in the US and other developed nations.

On a regional basis, exports to the US fell for the first time in almost three years, edging 0.7% lower on double-digit drops in autos, machinery used for construction and mining, and pharmaceuticals. The tech sector remained hot, with chip manufacturing equipment shipments rising more than 40%.

Exports to Europe fell by 8.1%, while shipments to China rose 5.2%.

A number of factors cloud the outlook for trade. China has struggled to revive its economy as a prolonged housing slump weighs on consumer activity, and extreme weather added to those woes over the summer. Meantime, economic activity in the US is expected to cool. 

Geopolitics could also create a headwind. Japan is close to agreeing to a deal with the US to curb tech exports to China’s chip industry, the Financial Times reported on Tuesday. In the January-March quarter, 50% of Japan’s exports of chips and related components went to the world’s second largest economy, the Nikkei newspaper reported.

Currency trends remain a source of uncertainty, with the yen having outperformed its peers over the last month on expectations the differential between interest rates in Japan and those in other developed nations will narrow. The Federal Reserve is widely expected to cut interest rates later Wednesday, joining the Bank of England and European Central Bank in pivoting to an easing cycle.

The stronger currency could exert a drag on the performance of Japan’s exporters, which benefited in recent years from the weak yen. In the August trade report, the yen averaged 150.89 to the dollar, 6.1% weaker than a year ago, the ministry said. The yen was trading around 141.8 per dollar Wednesday morning in Tokyo.

(Updates with economist’s comments)

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