(Bloomberg) -- Japan’s exports picked up more than expected in October as demand from China and the rest of Asia held firm even in the face of mounting uncertainties in overseas markets.
Exports rose 3.1% from a year ago, led by strong growth in shipments of chip-making equipment, especially sales to China, the Ministry of Finance reported Wednesday. The return to growth followed the first fall in exports in 10 months in September. The October result outpaced economists’ consensus estimate of a 1% gain, and was also supported by shipments of medical goods to the US.
Imports climbed 0.4%, compared to the 1.9% decline forecast by economists. The trade deficit widened to ¥461.2 billion ($2.98 billion) from ¥294.1 billion.
The stronger-than-expected growth will stoke hopes that Japan’s economy can stay on the recovery path with trade providing renewed support. While the country’s gross domestic product expanded for a second consecutive quarter in the period through September, the pace slowed as net exports weighed on overall results.
“Today’s data raise hopes for a pickup in external demand in the October-December quarter,” said Hiroshi Miyazaki, senior research fellow at Itochu Research Institute. “The Chinese government’s stimulus measures have halted deterioration in their economy, reversing a previous decline.”
Last month exports to China gained 1.5% after slipping 7.3% in September with exports of semiconductor-manufacturing gear jumping by a third. In the world’s second largest economy there are signs that aggressive stimulus efforts undertaken by the government are starting to bear fruit in some sectors, pushing up consumption.
Japanese exports in October rose even though the yen strengthened versus the dollar relative to the same period last year. Last month the yen averaged 145.87 to the dollar, 2% stronger than a year earlier, the ministry said.
The growth in shipments comes as officials fret over the prospects for global commerce now that Donald Trump is preparing to return to the White House. Global business leaders are bracing for the impact of rising protectionism if Trump makes good on his pledge to implement sweeping tariffs on 60% of imports from China and 20% from the rest of the world.
Some regions are already showing slackening demand. In October, shipments to the US fell 6.2%, while those to Europe declined 11.3%, both continuing to decrease from the previous month.
Japan’s central bank is closely monitoring the trajectory for external demand. Bank of Japan Governor Kazuo Ueda said on Monday that the bank must carefully assess various risks, including those pertaining to the US economy, and their likely impacts, even as he cited the growing likelihood that the Federal Reserve will manage to achieve a soft landing.
A major concern over trade going forward is US President-elect Donald Trump’s pledge to impose goods tariffs. The precedent from the previous US-China trade war in 2018-19 underscores the potential impact, as a 1% increase in tariff-inclusive export prices led to a 0.35 percentage-point decline in profit margins for Chinese exporters, according to research from Stanford University’s Center on China’s Economy and Institutions. A similar dynamic could offset the benefits of yen depreciation for Japanese firms, eroding profitability gains.
“We’re not at a stage yet where Trump’s tariff policies clearly start impacting export volumes or the behavior of exporters,” said Miyazaki. But “there’s still a sense of uncertainty. We need to keep watching the policy stance of the upcoming Trump administration.”
--With assistance from Paul Jackson and Takashi Umekawa.
(Updates with more details from report, economist comments.)
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