Japan exports on a roll but inflation stuck at low pace

Made-in-Japan cars waiting to be exported at Yokohama's port. Data from the Ministry of Finance shows Japanese exports grew 16.2 per cent in the year to November.
Made-in-Japan cars waiting to be exported at Yokohama's port. Data from the Ministry of Finance shows Japanese exports grew 16.2 per cent in the year to November.PHOTO: REUTERS

TOKYO • Japanese exports accelerated sharply last month, yet again pointing to growing momentum in the world's third-biggest economy. There was just one catch: Inflation was stubbornly low and well off the central bank's 2 per cent target.

The combination of steady growth and benign consumer prices means the Bank of Japan (BOJ) will lag behind other major central banks in exiting crisis-era monetary stimulus, with analysts expecting governor Haruhiko Kuroda to keep the liquidity tap wide open at a meeting later this week.

"Inflation expectation is in a gradual recovery trend, but a gap between firm economic indicators and weak price indexes remains wide open," said Barclays Securities economist Yuichiro Nagai.

A BOJ poll yesterday showed firms' inflation expectations heightened just a touch this month, from three months ago, despite a tight labour market and business confidence at over a decade high.

The persistently low inflation - with core prices running at an annual pace of 0.8 per cent - was also hard to square off with the robust performance of Japan Inc, which has gained from booming exports thanks to upbeat global demand.

Separate data from the Ministry of Finance shows exports grew 16.2 per cent in the year to November, beating a 14.6 per cent gain expected by economists in a Reuters poll and accelerating from the prior month's 14 per cent increase, led by a stellar sales to China and Asia.

Economists expect brisk Asia-bound shipments of electronics and solid capital investment in advanced economies will underpin Japan's export performance in coming months.

"The global economic outlook by IMF and OECD suggests the world economy will remain resilient for the time being, which will provide favourable export conditions," said chief economist Takeshi Minami of Norinchukin Research Institute.

That upbeat outlook was highlighted in the BOJ's tankan survey on business sentiment last week, which showed big manufacturers' optimism hit an 11-year high.

On the external front, the news was good for Japan, offering hope that an anticipated virtual circle of private sector-led growth will boost consumption and prices.

The value of exports to China, Japan's largest trading partner, rose 25.1 per cent year-on-year in November to 1.38 trillion yen (S$16.5 billion), the highest monthly amount on record, led by equipment to manufacture liquid crystal displays.

Shipments to Asia, which account for more than half of Japan's exports, grew 20.4 per cent in the year to November to 3.89 trillion yen, the record amount.

Exports to the United States rose 13 per cent in the year to November, led by cars and excavators, following a 7.1 per cent gain in the previous month.

"The upshot is that net exports should have provided another boost to GDP growth in the current quarter," said Mr Marcel Thieliant, senior Japan economist at Capital Economics.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 19, 2017, with the headline 'Japan exports on a roll but inflation stuck at low pace'. Print Edition | Subscribe