Japan’s exports rise for seventh month, supporting growth

Japan’s exports grew for a seventh consecutive month in June, supporting the view that in the second quarter, the economy will recover from the preceding three months’ contraction.

Exports gained 5.4 per cent from a year ago, led by chip-making gear and non-ferrous metals, Japan’s Finance Ministry reported on July 18. The result missed economists’ consensus estimate of a 7.2 per cent increase. 

Imports rose 3.2 per cent, compared with a 9.6 per cent gain estimated by analysts. With a smaller-than-expected rise in imports, the trade balance turned to a surplus of 224 billion yen (S$1.9 billion) from a deficit of 1.22 trillion yen 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 (BOJ) is mulling over the strength of the economy as it heads for its latest monetary policy decision at the end of July, 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 Daiwa Securities economist Yutaro Suzuki. “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 shipments was boosted by a weak yen, which the Finance Ministry said traded at an average of 156.64 against the US dollar in June, 12.5 per cent weaker than a year ago. 

By region, Japan’s shipments to the US gained 11 per cent, while those to China rose 7.2 per cent and exports to the EU dropped 13.4 per cent. There are some clouds in the outlook as China’s growth unexpectedly slowed to the worst 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 are 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 monitoring the impact of the weak yen on the economy and prices ahead of the BOJ’s next policy decision. The authorities have stepped into the foreign exchange market multiple times in 2024 to shore up the yen, with last week’s moves being seen as the latest example of a two-punch intervention effort. 
BLOOMBERG