Japan's trade prospects dim as May exports fall

The Kumamoto earthquakes in mid-April not only destroyed homes, but also stopped production of electronics and car parts at factories in the area. Many companies resumed production quickly, but it has taken a while for some plants to return to full c
The Kumamoto earthquakes in mid-April not only destroyed homes, but also stopped production of electronics and car parts at factories in the area. Many companies resumed production quickly, but it has taken a while for some plants to return to full capacity.PHOTO: AGENCE FRANCE-PRESSE

They drop 11.3% on quake disruption, slowing emerging markets; rising yen sparks concern

TOKYO • Japan's exports fell at the fastest pace in four months in May on supply-chain disruptions from the Kumamoto earthquake and slow growth in emerging markets - foreshadowing gloomy trade prospects for the current quarter.

Exports declined 11.3 per cent year-on-year last month, Ministry of Finance data showed yesterday, versus the median estimate for a 10.4 per cent annual fall and a 10.1 per cent annual drop in April.

Exports are likely to expand in coming months as overseas demand shows signs of stabilising, but Prime Minister Shinzo Abe remains under pressure to support growth as further gains in the yen threaten exports and corporate earnings.

"Exports in April-June have stagnated, reflecting disruptions to Japan's supply chain and soft demand overseas,"said economist Hiroaki Muto of Tokai Tokyo Research Centre. "There is strong reason to believe exports will pick up from July-September. We are not in a recession, but more gains in the yen would become a problem."

Exports fell last month on declines in shipments of steel, semiconductors and electronic parts, the data showed.

A series of earthquakes struck the southern manufacturing hub of Kumamoto in April, destroying homes, triggering landslides and stopping production of electronics and car parts at factories in the area. Many companies were able to resume production quickly, but it has taken a while for some plants to return to full capacity.

Exports to China - Japan's largest trading partner - fell 14.9 per cent in May, while the United States-bound shipments fell 10.7 per cent year-on-year.

Exports to Asia, which account for more than half of Japan's shipments, fell 13 per cent in the year to April, and European Union-bound shipments fell 4 per cent.

The yen has risen around 15 per cent versus the dollar this year due to receding expectations for US interest rate hikes, which is weighing on exports. The yen's surge makes the nation's products less appealing overseas and hurts the earnings of exporters.

If the yen continues to rise, it could in turn discourage companies from raising wages and capital expenditure. A strong yen also complicates the Bank of Japan's attempts to encourage inflation because it reduces the cost of imported goods.

"With the Brexit (British exit from the EU) vote coming up and expectations over (Federal Reserve) rate hikes weakening, the yen's appreciation could be prolonged, increasing downside risks to Japan's economy," economist Atsushi Takeda of Itochu Corp in Tokyo said.

Finance Minister Taro Aso also escalated his concern over the yen last Friday, calling for coordination with his overseas counterparts to address what he described as disorderly moves in the currency market.

Mr Aso said that he was "very concerned" about one-sided, abrupt and speculative moves in the currency market. Toyota Motor Corp has warned that annual net income will probably decline for the first time in five years, due to the stronger currency.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 21, 2016, with the headline 'Japan's trade prospects dim as May exports fall'. Print Edition | Subscribe