Japan exports grow unexpectedly on solid car sales, global demand still uneven

TOKYO - Japan’s exports grew unexpectedly in May on robust car sales, though the rate of expansion slowed to a crawl as inflation and rising interest rates bit into global demand, highlighting a patchy recovery in the world’s third-largest economy.

While the country’s hotels, restaurants and other service sector companies

have seen a boom in business

since Covid-19 curbs were eased, its factories have been struggling amid weakening demand for cyclical items such as chipmaking machines.

Ministry of Finance data showed on Thursday that exports rose 0.6 per cent year on year in May, for the 27th straight month of rises, led by 66 per cent growth in car shipments.

The overall exports growth was the slowest since February 2021 and followed a 2.6 per cent rise in April.

In 2023, domestic demand may temporarily outpace slumping exports as a key driver of growth, said Norinchukin Research Institute chief economist Takeshi Minami.

Separate government machinery orders data, also released on Thursday, underlined the struggles faced by manufacturers, though the overall numbers suggested the service sector is providing some cushion to the economy.

Core machinery orders rose 5.5 per cent in April from the previous month, the first increase in three months.

While orders from manufacturers were down 3 per cent, an 11 per cent growth in service sector demand for items such as computers drove up the headline figure.

On a year-on-year basis, core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, fell 5.9 per cent, versus a forecast for a decline of 8 per cent.

Imports still weak

Japan’s gross domestic product expanded by an annualised 2.7 per cent in January-March, much higher than a preliminary estimate of a 1.6 per cent growth, as revised capital expenditures and firm private consumption more than offset the slowdown in external demand.

The trade data also showed that imports fell 9.9 per cent in the year to April, down for the second straight month on softening commodity prices.

By region, Japanese exports to China, the country’s largest trading partner, fell 3.4 per cent year on year in May for their sixth month of decrease, due to shrinking steel and auto parts shipment, although items such as cars and semiconductors recorded growth.

Exports bound for the United States, another key market for Japanese exports, grew 9.4 per cent in the year to May on double-digit gain in car shipments.

“For the outlook of Japanese exports, the US Fed’s rate-hike pause is positive news that will further vitalise American private consumption,” said Daiwa Institute of Research economist Kazuma Kishikawa.

“With recovery in Chinese goods spending and easing supply bottlenecks for Japanese manufacturers, Japan’s export volume will gradually pick up.” REUTERS