Japan's exports fall again, as US trade policy threatens outlook

Ministry of Finance data yesterday showed Japan's exports fell 2.4 per cent last month from a year earlier, down for a fifth straight month. Exports to China fell 6.3 per cent last month from a year earlier, down for the second straight month. PHOTO:
Ministry of Finance data yesterday showed Japan's exports fell 2.4 per cent last month from a year earlier, down for a fifth straight month. Exports to China fell 6.3 per cent last month from a year earlier, down for the second straight month. PHOTO: REUTERS

Trade surplus with US up, and Tokyo fears Washington could curb Japanese car imports

TOKYO • Japanese exports contracted for the fifth month in April due to a slump in shipments of chipmaking equipment to China, underlining the growing threat to the world's third-biggest economy from a bruising US-China trade war.

Data also showed Japan's trade surplus with the United States rose for a second month as car exports accelerated, which could draw US President Donald Trump's ire before US-Japan trade negotiations begin this week followed by a leaders' summit a few days later.

The Trump government is trying to renegotiate trade agreements with major economies to lower the US trade deficit and address what it considers as unfair trade practices.

That approach has set off an intensifying tariff dispute between the US and China - major trading partners of Japan - in a blow to global businesses, trade and overall growth.

Washington's stance is doubly harmful to Japan because it has slammed the brakes on exports to neighbouring China and exposes the trade-reliant economy to curbs on its shipments of cars to the US.

"Some Japanese firms are still optimistic about a resolution to recent trade friction, but the implications are quite serious," said Mitsubishi UFJ Morgan Stanley Securities senior economist Hiroshi Miyazaki.

"We may reach a point where Japanese firms shift production from China or other places. Tokyo policymakers need to make sure US-Japan trade stays out of the spotlight."

Ministry of Finance data yesterday showed Japan's exports fell 2.4 per cent last month from a year earlier, down for a fifth straight month. That compared with a 1.8 per cent drop seen by analysts in a Reuters poll, and a similar 2.4 per cent decline in March.

Exports to China fell 6.3 per cent last month from a year earlier, down for the second straight month.

The data also showed Japan's trade surplus with the US rose 17.7 per cent last month from a year earlier to 723.2 billion yen (S$9 billion), partly led by an 8.3 per cent increase in car exports.

US Trade Representative Robert Lighthizer will visit Japan tomorrow to meet Economy Minister Toshimitsu Motegi to accelerate trade talks ahead of a leaders' summit a few days later.

CAR EXPORT RISK

Mr Trump angered foreign carmakers by declaring that some imported vehicles and parts posed a national security threat, and Tokyo fears Washington could attempt to set a quota on Japanese car imports.

The spectre of a drawn-out trade war comes at a delicate time for Japan's economy.

Gross domestic product (GDP) data on Monday showed Japan's growth unexpectedly accelerated in January-March because imports fell more than exports, suggesting domestic consumption was weakening at the same time external demand had turned down.

The GDP data showed declines in consumer and business spending, a bigger source of concern as companies worried about the future.

Last month, imports rose 6.4 per cent year on year from a 1.2 per cent gain in March, due to increases in oil and related purchases.

Faltering overseas demand and weak consumer spending could keep policymakers under pressure to forgo a twice-delayed tax hike in October, although a rebound in manufacturers' confidence may ease some fears of a recession in the world's third-largest economy.

Gross domestic product data on Monday showed Japan's growth unexpectedly accelerated in January-March because imports fell more than exports, suggesting domestic consumption was weakening at the same time external demand had turned down.

Japanese manufacturers' morale this month improved for the first time in seven months, a Reuters poll showed yesterday.

However, two-thirds of companies surveyed expect economic growth to remain flat in the second quarter, while 82 per cent of firms believe Japan's economy is not fully prepared for a planned tax hike, a Reuters monthly poll showed.

Investors are closely watching the government's monthly report due later this week for a possible downgrading of its view that the economy is in a gradual recovery, which would rekindle speculation about a tax hike delay.

To be sure, there are some positive signs for Japan's economy.

Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 3.8 per cent in March - against forecasts of a 0.7 per cent decline.

Furthermore, manufacturers surveyed by the Cabinet Office forecast core orders to jump 15.7 per cent in April-June after a 3.2 per cent decline in the previous quarter.

In Japan, a sales tax increase to 8 per cent from 5 per cent in April 2014 hit consumers hard and triggered a sharp economic slump.

Since then, Prime Minister Shinzo Abe has delayed the planned tax hike to 10 per cent twice as he prioritised economic growth over fiscal reforms, despite the industrial world's heaviest public debt burden, which sits at twice the size of Japan's US$5 trillion (S$6.9 trillion) economy.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 23, 2019, with the headline 'Japan's exports fall again, as US trade policy threatens outlook'. Print Edition | Subscribe